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How Credit Is Calculated

Top Tips and Advice from the Best Credit Repair Services

A credit score can tell lenders much about your financial situation and your creditworthiness. While a credit score that falls between 300 and 850 is uncomplicated, the factors that go into the final calculation can be.

To your lenders, your credit score tells them one vital thing: the higher the score, the less of a risk they take by lending money to you.

Your Score and What It Means

Your credit score, also called your FICO score, ranges from 300 to 850. 850 is the best, while 300 is the worst.

If your score is between 300 and 699 – between bad and fair – you have a bit of work to do as your credit is questionable, and potentially risky for lenders.

  • Below 600 indicates you have bad or no credit.
  • Between 600 and 649 is a poor credit score.
  • Between 650 and 699 is a fair credit reputation.
  • If your score is between 700 and 749, you have good credit.
  • If your score is over 750, you have an excellent score.


What Factors Into A Credit Score?

  • Payment History

Payment history is the most critical element that affects you as it is worth 35% of a total score. It is also a factor that can both negatively and positively affect you since it formulates your bill payment practices. As lenders regularly report to credit bureaus, it is also a factor that adjusts your score regularly. Even a few points can make the difference between a high annual percentage rate and a low one, so watch your payment history.


  • Credit Utilization Rate

Another significant factor you need to pay close attention to is your credit utilization rate which accounts for 30% of your total score. This rate is your total credit limit minus your current debt. Lenders like to see a borrower’s score under 30%, so try to cut down on your debt to lower your utilization rate. A lower score also helps you get future offers.


  • Credit History

Lenders want to know about credit history because it is a predictor of future consumer behaviors since it provides details on both older and newer accounts. The information tells creditors about your understanding of credit as well as your ability to make payments. It is worth 15% of your total credit score, so start here to raise your score.


  • Credit Types

It is a benefit to maintain a variety of credit accounts. Lenders want to see credit cards, installment loans, or retail accounts. This information is 10% of your total score, so keep it in mind when trying to decide which types to submit applications. If you do not have any credit, you can start with a personal loan or a retail account to begin to build it up.


  • Number Of Accounts

The number of credit accounts available to you is worth 10% of your score. Your balances are also part of the account history scoring model. The more accounts you have lower to zero, the better your score will be. It can also fluctuate your score monthly. Accounts that carry over balances will hurt your score. Keep an eye out on your balance.


What Is A Credit Report?

In 2015, the Federal Trade Commission found that 20% of consumers have credit errors on at least one major credit bureau report. The FTC also found that about 5% of consumers have errors that increase the amount paid for products or services.

Take the time to go over each of your reports to see if the data is correct. Look for any unpaid bills, credit history discrepancies, or lines of credit you are not aware. While an error does not signify that it is the reason for a low credit score, clearing up any mistakes is an important start. Critical issues you should be aware include:

  • Unpaid Debts
  • Indicators Of Identity Theft
  • Debts Past Statute Of Limitation But Still On Your Report
  • Debts That Others Owe Like Divorce Decrees Or Co-Signed Loans

A credit report is not a credit score. It is up to the lender as to which credit reporting agencies they check. Your score and history differentiate based on the information that the creditors submit since no law requires them to submit to all of them.

Your credit report helps lenders verify your status as well as the amount of financing they will apply to your account. Credit reports are also updated in real time, so creditors see a snapshot of your current payment activity. Agencies that request a credit report may decide insurance rates, leasing guidelines, utility deposits, and employment eligibility,

 What Makes Up My Credit Score?

Whether you decide to repair your credit reputation or turn to the experts who offer credit repair services, you must have a plan in place to raise your credit score. There is no one-size-fits-all solution as each person’s credit and payment history is different. When you blend our knowledge with your history, it helps you establish the critical areas you need to improve while engaging in consumer activities that boost your score in real-time.

  • Payment History: 35% Of Score

A critical component to getting new credit is establishing your probability to pay your bills which is why your payment history is a vital part of your score. Have you repaid loans, mortgages, or credit cards without defaulting? Are you making your payments now on time? These are critical consumer behaviors that creditors will consider when deciding on your creditworthiness.

  • Credit Utilization Ratio: 30% Of Score

Credit utilization is just as important in the present as your past payment history was as it indicates your current credit behaviors. Are your balances too high? If you have a $5000 credit line and owe $4000, your credit utilization rate is 80%. It should be below 30%, so you have work to do. You should pay higher monthly payments while not adding any new debt to the balance

  • Credit History: 15% Of Score

How long have you had your credit line accounts? The length of your credit history will hurt people with no or low credit significantly because it will either put you in a higher interest rate or disqualify you altogether. Since there is a lack of data to help establish your credit history, you should open a new phone line or find other consumer-friendly ways to establish it

  • New Lines Of Credit: 10% Of Score

Opening a new line of credit can lower your credit utilization rate significantly. Since your debt to credit limit shifts, you will want to be careful of opening too many new accounts in a short period because it is a red flag to creditors that you may have financial difficulties.  Creditors weigh the risk against the reward, and if they think your financial situation is less than optimal, it will affect your credit line amount and interest rate. Multiple inquiries will also decrease a score as well.

  • Lines Of Credit In Use: 10% Of Score

Your FICO score considers the number of credit lines you have open. This component goes hand-in-hand with credit utilization as this establishes the base for which your debt will compare. Applying for a new line of credit will raise your credit limit, so this is a vital reason to work on your credit score so that you qualify for increases and new lines of credit naturally.

Knowing the FICO formula narrows the scope of reparation requirements. If you research each component and establish ways to increase your score in increments, it will dramatically affect your score in both the short and long term. You will also learn to ask how do credit repair companies work to improve these five factors.

What Else Affects My Credit Report?

While the five components of a credit score set the tone for lenders, there are a few things that can raise or lower your number slightly. Hard credit inquiries and negative consumer information factor into how lenders value your creditworthiness and overall reputation.

  • Hard Credit Inquiries

Anytime you apply for credit, a lender performs a hard credit inquiry requesting additional information on the applicant. When this action occurs, it generates a notation that alerts lenders. If you apply for things like a house or car, bureaus count multiple inquiries in a short period as one inquiry as it is for one item.

  • Negative Consumer Information

Bankruptcies, tax-liens, write-offs, and account settlements are things that lenders consider negative consumer information that affects their decision. Depending on the type of closure, it affects you for years to come. Very few lenders will feel comfortable giving you credit when you did not pay debts. Other issues include:

  • Missed Payments

Did you know that missed or late payments stay in your history for seven years? Even if you have excellent current payment activity, a negative history will affect you for seven years. Seeking reliable credit repair services will help you to overcome this challenge.

  • Bankruptcies

People typically file bankruptcy when their debts have grown higher than their assets. There are two types of bankruptcies that affect a borrower’s reputation. Chapter 7 filers will not have to repay any debts, but it will stay on a credit report for ten years.

Chapter 13 filers intend to repay some of the debt owed, but it only stays on a report for seven years. While both are negative, lenders would much rather see a Chapter 13 than a Chapter 7 as it shows you did attempt to clear up your debt in the long-term.

  • Collections

As in-house debts age, they become liabilities that are too expensive to continue to collect actively. A company would rather risk sending an account to a collection agency at a small loss rather than continue to collect on a closed account with a balance

It also frees up employees to handle core company duties. Accounts go to collections after six months of a debtor’s non-payment or non-communication. It remains on your credit report for seven years and will negatively impact your credit

  • Charge-Offs

It is not a good sign when creditors see charge-offs in your credit history as it tells them that you failed to pay your past debts. The company eventually will give up because of the collection expense and will write the debt off as an uncollectable loss.

Creditors tend to sell these debts to a collection agency at a rate lower than what a debtor owed. Charge-offs affect the debtor as well since the company and the collection agency have the right to charge fees and interest that continues to grow long-term.

  • Repossessions

Some creditors secure loans by requesting collateral. When a debtor defaults on such loans, the lender repossesses the property. Whether it is a car which the financing paid for or a bank loan that you used something of value to get, they affect your credit report and reputation since you failed to meet your obligations.


  • Account Settlements

Whether a debtor files for bankruptcy protection or takes advantage of credit repair services, lenders will often settle on balances due them. In a lender’s opinion, a smaller payment is better than no payment at all. Settled accounts still affect you as it negatively reflects on your credit report as you did not pay in full.

  • Foreclosure

Much like repossessions, a foreclosure is for real estate property after borrowers fail to pay their mortgages. As this is typically for high-dollar loans, it will negatively affect you for seven years. It will also most likely prevent you from buying a new home.

  • Voluntary Surrender Of Property

If you find that you are unable to pay for a loan, a lender might agree to take back the property which leads to voluntary surrender. It will still end up on a credit report, and you might owe a balance which could go to collections and incur additional expenses.


What Else Should I Know About Credit Calculations?

Even when you are keeping up with your payments and paying more than your minimum amount due, your current consumer behaviors can affect your score negatively. When you close an account, it reduces the amount of credit you have available. As your credit utilization is worth 30% of your score, it can adversely affect your score significantly when reducing your limit. Closing older accounts also factor into the 15% of your score, so think about it before ending it.


If you only apply and use credit cards, it also affects your credit mix score. If you have received car loans in the past or have retail accounts, you will be fine. If not, you can apply to a local or online retailer to diversify your credit mix. It will add some points to your credit score.


When you apply for too many new credit accounts in a short amount of time, it sends a red flag to lenders who see multiple hard inquiries on a credit report. It also tends to signify to creditors that you may have a financial hardship. It also increases the risk level which affects your APR.

If your credit score or history has negative information, credit repair services provide excellent credit repair advice. Out website, Personal Finance Tips, provides additional information on the best credit repair companies that will help you overcome any of these challenges.


  1. Kraig says:

    Thank you for the excellent post

  2. Bell says:

    This is really useful, thanks.

  3. Travis says:

    Thanks for the excellent guide

  4. Loren says:

    I spent a great deal of time to locate something similar to this

  5. Marcelo says:

    Thanks for the great article

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