It’s Not A Secret Formula: What They Look For When Calculating Your Credit Score
Stephen Leifer
Consumer Credit Expert Educator ? Business Credit and Finance Specialist-10,000+ Connections
While it might seem like a top-secret formula used to calculate a person’s credit score and overall credit ranking, the top credit scoring companies, Fair Isaac and Vantage Score, are both clear on what they look for when making the calculations.
The differences are in the number of variables each one uses: FICO looks at five variables, while Vantage Score looks at six. They also weigh each variable differently, as shown in the chart below.
In both models of scoring, the most emphasis is placed on “payment history” to determine a person’s credit score. Lenders will look for specific things related to your payment history, such as how recent a late payment was made (if there was one made) and how many late payments there were. They will also look at the severity of the lateness of a payment—a payment that is made 120 days past its due date will look a lot worse than one that is made 30 days late.
Both models of scoring also place emphasis on the amount of credit you owe but the Vantage Score looks at the amount you owe as well as the amount of credit you have left that you aren’t utilizing. This is why it’s a good idea to keep your credit usage under control. The ideal is to make sure the amount of debt you have on credit card accounts is less than one third of your credit limits on those accounts.
Another thing to keep in mind is that both scoring models look for your recent credit inquiries, and too many applications for credit within a short span of time could make your score drop by as much as 5points.