Most consumers use credit in one way or another, whether it’s a rewards credit card that modestly reduces the net cost of everyday purchases, an auto loan that brings a new car within financial reach, or a mortgage that lands you in a place you can truly call your own.
Most credit-using consumers therefore understand what makes a good credit score, if only because they know what it’s like to have a credit application denied due to poor credit.
But understanding the distinction between a good credit score and a not-so-good credit score isn’t quite as simple as knowing that the former gets you what you want and the latter, well, doesn’t. Several key factors affect your credit score. You need to put in some work to ensure that their influence remains positive.
That work is easier for credit users familiar with the two most important consumer credit scoring models: FICO and VantageScore. FICO and VantageScore aren’t radically different from one another, but there’s enough daylight between the two to warrant closer examination. And because both models periodically update to improve their predictive capabilities and perceived fairness. FICO rolled out its latest iterations, FICO 10 and FICO 10T, in mid-2020, while VantageScore debuted its brand-new VantageScore 4.0 model toward the end of that same year. Consumers who don’t closely follow credit industry news might benefit from a refresher, even if they know more or less how credit scoring works.
FICO Score: Scoring Factors and Minimum Scoring Requirements
The Fair Isaac Corporation, popularly known as FICO, has been the dominant consumer credit scoring authority in the United States for decades.
FICO issues “single-bureau” credit scores using credit report information provided by each of the three major consumer credit reporting bureaus: TransUnion, Experian, and Equifax. Because each bureau keeps its own records and doesn’t share information with the others, most consumers with credit histories adequate to meet FICO’s minimum scoring requirements have three different FICO scores calculated using three different credit reports.
FICO’s Minimum Scoring Requirements
FICO calculates credit scores on credit reports that meet three minimum scoring requirements:
- The Consumer Is Alive. FICO doesn’t calculate credit scores on credit reports that give any indication that the consumer is no longer living. This isn’t an issue for individual account holders but can cause problems for surviving spouses or partners. If the primary account holder on a joint account is deceased, FICO may not consider the account valid for credit scoring purposes.
- One Account (Tradeline) Open for Six Months or More. FICO doesn’t score credit reports for which the oldest reported account is younger than six months. In other words, FICO doesn’t score reports without six months or more of current, continuous activity.
- One Report Within the Past Six Months. FICO won’t score credit reports without activity on at least one reported account from the previous six months. This active account doesn’t have to be the same as the one that meets with “open for six months” criterium.
If any of your three credit reports meet these three minimum FICO scoring criteria, you should have a FICO score for that report.
FICO’s Scoring Range and Ratings
Credit scores calculated using FICO’s “main” general scoring model range between 300 — the minimum possible FICO score — and a perfect FICO score of 850. Five subranges, or rating tiers, fall within this broader range:
- Very Poor/Poor (300 to 579): Credit applicants with scores in this range are frequently denied credit, especially at the lower end of the range. Credit approval is far more likely for products designed for people with impaired or limited credit, such as secured credit cards, which condition approval on a refundable security deposit.
- Fair (580 to 669): This tier is considered “subprime.” Applicants with fair credit generally don’t qualify for credit products reserved for “prime” borrowers, such as generous travel rewards credit cards. When approved for credit, applicants with fair credit generally pay higher interest rates.
- Good (671 to 739): This is the lowest “prime” credit tier. Applicants with good credit have better chances of credit approval than lower-rated applicants and typically qualify for lower rates with more favorable terms.
- Very Good (740 to 799): Applicants with very good credit are more likely to qualify for premium credit products and more likely to receive favorable offers — better rates and terms with higher credit limits.
- Exceptional (800 to 850): Members of this exclusive club qualify for the best rates, most favorable terms, and highest credit limits available.
FICO does produce industry-specific scores, such as the FICO Auto Score for auto lenders and FICO Bankcard Score for credit card companies. These industry-specific scores range from 250 to 900. However, they’re far less widely used than the “main” FICO score, even within the industries they serve.
Pro tip: When you sign up for a free Experian Boost account, you can instantly improve your FICO credit scores.
FICO Score Factors and Weights
FICO has issued 10 major updates to its “main” credit score, known simply as the FICO Score. The most recent update, FICO 10 and 10T — a similar version that incorporates data trends over a rolling 24-month period — rolled out in 2020.
Lenders don’t immediately incorporate FICO score changes into their underwriting models. Switching to a newer model requires substantial human and financial resources. Accordingly, many lenders have yet to update to FICO 9, let alone FICO 10. It’s therefore fair to expect years to pass before FICO 10 makes its presence known. And some corners of the lending industry, particularly the mortgage business, continue to use even older FICO versions.
Fortunately, the factors and weights that FICO uses to calculate its credit scores don’t change radically with each successive update. The basic equation for the “main” FICO score has been constant for many years.
1. Payment History
Lenders are eager to know whether would-be borrowers have had any trouble repaying their debts in the past. Accordingly, payment history is the most heavily weighted factor in FICO’s algorithm, accounting for 35% of the total calculation. Payment history information includes but isn’t limited to:
- Payment records on most credit accounts in your name, including credit cards, auto loans, mortgage loans, personal loans, and more
- The length of any delinquencies, past or present
- The amount owed on any delinquent accounts
- The number of delinquent accounts (alternatively, the ratio of current to delinquent accounts)
- Adverse public records related to payment or nonpayment of debts, such as bankruptcies and wage attachments
Payment history information generally remains on your credit report for seven years, although the algorithm may reduce the weight given to older delinquencies or bankruptcies as time goes on. FICO’s payment history explainer has more detail about what’s included in the category and how FICO uses this information.
2. Amounts Owed
This category covers the amounts you owe on your various credit accounts, how those amounts are distributed across your credit profile, and how much of your available credit you’re using (credit utilization), among other considerations. Your credit score is helped by having low balances overall, relatively few credit accounts with balances, and relatively low credit utilization.
Cumulatively, these considerations account for 30% of your total FICO credit score calculation. FICO’s explainer on amounts owed has more on this category.
3. Length of Credit History
Length of credit history incorporates several considerations related to how long you’ve been using credit, both in the general sense — the time since opening your first credit account — and with regards to specific credit accounts:
- The age of the oldest credit account on your report
- The age of the youngest credit account on your report
- The average age of all accounts on your report
- How long each credit account has been open
- How long it has been since you used each credit account
Your length of credit history accounts for 15% of your total FICO score calculation. Assuming no change to the four other credit scoring factors and no account closures — which reduce your average credit age — your credit score should improve with time.
See FICO’s length of credit history explainer for more information about this category.
4. Credit Mix
This category considers the diversity of your credit profile. All else being equal, having a wider range of credit types — rather than, say, five credit cards and no other credit accounts to your name — is a good thing for your credit score. That said, credit mix accounts for just 10% of the total FICO score calculation, so it’s rarely make-or-break.
FICO’s credit mix explainer has more detail on this category.
5. Recent Account Activity (New Credit)
This category includes three considerations related to your recent credit inquiries and recently opened credit accounts:
- How many hard credit inquiries — as part of an application for credit, for example — you’ve had in the past 12 months
- How many new accounts you’ve opened recently, important mainly as it affects your average account age
- How much time since you opened a new credit account, with each type of account considered separately
This category only accounts for 10% of the total FICO score calculation, so you shouldn’t avoid applying for a new credit account or two solely because you’re worried the application will hurt your credit score. Additionally, you have some wiggle room to make multiple applications for the same type of credit (such as a mortgage or auto loan) within a short period of time (45 days). FICO treats all such applications as a single inquiry.
FICO’s new credit explainer has more on this category.
Factors That Don’t Affect Your FICO Score
FICO credit scores exclude noncredit factors, such as age, race, religion, geography (where you live), soft credit inquiries, employment status, length of employment, and debt-to-income ratio.
However, lenders are legally permitted to use certain noncredit, nondemographic factors in underwriting decisions, notably debt-to-income ratio, employment status, and income from employment. In other words, don’t assume your FICO score is the sole determinant of your credit applications’ success or failure.
VantageScore: Scoring Factors and Minimum Scoring Requirements
VantageScore is a newer scoring model — released for the first time in 2006 — that arose out of a partnership between the three major credit reporting bureaus. VantageScore’s backers explicitly position the model as a FICO alternative that improves lenders’ predictive capabilities and increases consumer access to credit.
VantageScore is a “tri-bureau” score that incorporates and blends credit report information from all three bureaus. Each consumer has just one VantageScore credit score.
VantageScore’s Minimum Scoring Requirements
VantageScore’s minimum scoring requirements aren’t as strict as FICO’s. VantageScore does refrain from scoring reports for deceased consumers, which can complicate matters for surviving spouses and partners without active tradelines of their own.
Otherwise, the VantageScore model typically produces scores for consumers with one to two months of credit history, regardless of which bureau reports that activity. Unlike FICO, VantageScore doesn’t have six-month aging or activity requirements. This enables the model to produce current, reliable credit scores for far more consumers than FICO — 40 million more, according to VantageScore.
VantageScore’s Scoring Range and Ratings
Credit scores calculated using the two most recent VantageScore versions — VantageScore 3.0 and 4.0 — range between 300 and 850. Credit scores calculated using VantageScore 1.0 and 2.0 both ranged from 501 to 990, but neither older model is widely used any longer.
VantageScore’s rating tiers break down as follows:
- Very Poor (300 to 499): Applicants in this tier are unlikely to be approved for credit. Some exceptions may apply, such as low-limit secured credit cards and credit-building loans specifically designed for people with bad credit, but security deposit requirements (or high down payments, depending on the product type) are likely.
- Poor (500 to 600): Applicants in this tier may be approved for credit products designed for people with impaired credit, such as secured credit cards. Rates, terms, and spending limits are all likely to be unfavorable.
- Fair (601 to 660): Applicants with fair credit are more likely to qualify for credit but not with particularly favorable rates or terms and at lower limits than prime borrowers.
- Good (661 to 780): Applicants with good credit, especially at the higher end of the range, qualify for a much wider range of credit products with more favorable rates, terms, and limits.
- Exceptional (781 to 850): Applicants with exceptional credit typically qualify for the best rates and terms with generous borrowing limits.
Unlike FICO, VantageScore doesn’t offer industry-specific scoring models.
VantageScore Factors and Weights
VantageScore is on its fourth version: VantageScore 4.0. However, many lenders continue to use VantageScore 3.0, the most recent prior version, and a widespread switch to VantageScore 4.0 is likely to take years.
Like FICO, VantageScore’s updates don’t radically change the factors or weights that go into its calculations. That said, VantageScore 4.0 represented a big leap from previous versions, consolidating what had been six major credit factors into five. Unlike FICO, VantageScore doesn’t reveal precise weights for each beyond subjective characterizations of their influence.
1. Total Credit Usage, Balance, and Available Credit
This category is similar to FICO’s Amounts Owed category. It encompasses your total available credit — the sum of all credit lines available to you — your balances on each open credit account, and the total amount of credit you’re utilizing.
VantageScore rates this category as “extremely influential” — the most important of the five factors responsible for your VantageScore 4.0 score. Its advice: Utilize no more than 30% of your available credit.
2. Credit Mix and Experience
This is the analogue to FICO’s Credit Mix category, with an added dimension that considers how your credit mix evolves over time. It’s “highly influential” — the second most important of the five factors.
VantageScore recommends maintaining a diverse mix of open credit accounts, including multiple installment loans, such as auto and home loans, and revolving credit like credit cards and secured credit lines.
3. Payment History
This category considers how and whether you’ve paid your debts in a timely fashion over the years. Like FICO, VantageScore considers the totality of your credit profile, and although a single late payment or two won’t dramatically lower your credit score, a pattern of inconsistent payment certainly can.
VantageScore doesn’t have much advice to give on this category, other than the expected “pay all your bills on time.” On the bright side, VantageScore doesn’t consider payment history as important as FICO — it’s rated “moderately influential,” the third most influential of the five.
4. Age of Credit History
This category is the analogue to FICO’s Length of Credit History factor. Like FICO, VantageScore recommends keeping open credit accounts in good standing, even if you don’t use them regularly. However, this isn’t a make-or-break category — it’s one of two “less influential” VantageScore factors.
5. New Accounts Opened
The other “less influential” VantageScore factor considers the number and type of new inquiries and accounts opened in the recent past. VantageScore’s consolidation period — the period it treats multiple applications for a single type of credit as a single application — is shorter than FICO’s at just 14 days.
Factors That Don’t Affect Your VantageScore
VantageScore credit scores exclude noncredit factors like age, other demographic factors like race or religion, history of soft credit inquiries, employment status and history, income and debt-to-income ratio, and geography (where you live).
However, lenders that use VantageScore credit scores to make underwriting decisions also incorporate certain noncredit factors into the process. The most important of these factors are debt-to-income ratio, income from employment, and employment status.
Unless you’re among the tiny fraction of Americans with perfect FICO and VantageScore credit scores, there’s room for your credit to improve. Even if you do have perfect credit, you can’t sit back and ignore your scores forever. A single ding could upset your flawless record, although an isolated slip-up or two probably won’t be enough to drastically alter your life.
And if you’re still a ways off from perfect, excellent, or even good credit? A sound understanding of the factors that influence your FICO and VantageScores and the differences between the two models is important. So too is knowing which steps to take, and in what order, to rebuild or improve your credit. Those hoped-for results won’t materialize overnight or next week, but with persistence and vigilance, you can make real progress toward your credit goals. Eventually, you’ll reap the rewards.