Consumer Corner: Unraveling the mystery of credit score calculations






For the Recorder

Published: 06-27-2024 10:07 AM

Do you know your credit score? Equally important, do you know how that score is calculated?

This is important information to have because it impacts your standing when you go to apply for a car loan, mortgage or credit card. Yes, a person’s score plays a big role in determining not only whether you get the loan or credit card but also the interest rate you’re charged for that credit.

Information on your credit reports is used to calculate your credit score, which ranges from a low score of 300 to an excellent score of 850. A high score means that creditors think you are a solid candidate for a loan, because you pose less financial risk and are more likely to repay a debt. You’re more likely to qualify for a credit card or loan and pay less for that credit. A low score means it could be harder for you to get credit, and you will likely pay higher interest rates.

Consumers have more than one credit score. The Fair Isaac Corporation score (commonly referred to as FICO) developed a method for calculating credit scores based on information collected by credit reporting agencies.

FICO, the one most frequently used by lenders, offers consumers one-time credit score reports for a fee and more frequent updates through a subscription plan. Account holders with many credit card issuers can access free FICO scores through services such as Experian Boost and CreditWise through Capital One.

The three credit reporting agencies — Experian, Equifax and TransUnion — have developed VantageScore, which you can get from some credit card companies or credit monitoring services. Some of these services are free, but others may require a subscription or a fee, so be sure to read the fine print before signing up.

All these evaluations use the same information from your credit report to calculate a credit score. Those factors, important for all consumers to know, include:

<sbull value="sbull"><text xmlns="urn:schemas-teradp-com:gn4tera"></text></sbull> Payment history. Do you pay your bills on time? Accounts sent to collections, repossessions and bankruptcy will hurt your credit score.

Credit history. How long have you had credit? A long credit history can boost your score. A short credit history may hurt your score, but paying bills on time and having low balances can help counteract that.

Available credit. Are your credit cards maxed out? If the amount you owe is close to your credit limit, it’s likely to hurt your score.

Seeking new credit cards. Have you applied for new credit lately? If you’ve applied for too many new accounts recently, lenders may see that as a negative and think you are desperate for credit. Too many “hard inquiries” of your credit reports — which means creditors checking after you apply for new credit — can also lower your credit score. Checking your own credit score or ordering your credit reports will not affect it.

Credit variety. How many credit accounts have you had and what kinds of accounts are they? If you have had a variety of different loans and lines of credit, and pay them on time, it can help your credit score.

Of the factors listed above, payment history and credit history carry the most weight, according to FICO. This means you may have a different score than your spouse or partner, even if you are co-signers on the same credit accounts. If one has a longer credit history, for example, their score may be higher.

Because the information in your credit reports is used to calculate your credit score, it is advisable to check your credit reports to ensure they contain accurate information. Request copies from Experian, Equifax and TransUnion by calling 877-322-8228 or visiting

Check them over carefully to make sure there are no mistakes or accounts you didn’t open and that your payment history is accurate. If any report contains incorrect information, report it to the credit reporting company so it doesn’t hurt your credit score.

Other ways to improve your credit score include making payments on time every time. If you miss a payment, pay it as soon as possible. If you are unable to pay, reach out to the creditor right away to try to negotiate a payment plan.

It is also advisable to avoid running close to your credit limit. Keeping your credit card balance at less than 30% of the credit limit can help your credit score. You don’t need to keep a small monthly balance on your credit cards to show you are creditworthy. On the contrary, paying off the balance every month will help your credit score and save you money because you won’t be paying interest on the balance.

Only apply for the credit you need. If you open several new accounts in a short period of time, your credit score may go down. Think about whether you really need to open a store credit card, for example, just to get a discount or whether it’s wiser to pay cash or use a credit card you already have.

Younger adults generally have lower credit scores or no credit score because they don’t have an established credit history. They can actually build their credit history by opening a student or secured credit card once they turn 18. Becoming an authorized user on a parent’s credit card can help build credit if the bill is paid on time and the card isn’t maxed out.

Some banks and credit unions offer small “credit-builder” loans that can help boost credit scores if the payments are made on time and reported to all three credit bureaus.

An invitation to you

Finally, if you have a consumer question or problem, chances are others do, too. I invite anyone to email me with any consumer questions you would like answered. I will try to provide the answers in this space. To send along your questions, email

To reach the Consumer Protection Unit of the Northwestern District Attorney’s Office to discuss an individual issue, you can call the Greenfield office at 413-774-3186 or the Northampton office at 413-586-9225. You may find helpful information about consumer issues at

Anita Wilson is director of the Northwestern District Attorney’s Office Consumer Protection Unit, which is a Local Consumer Program working in cooperation with the Office of the Massachusetts Attorney General.