How credit scores are calculated

OK, so you know what your credit score is. But do you know how it was calculated?

While many lenders keep their scoring formulas under more security than the recipes for Coca-Cola and Kentucky Fried Chicken combined, the basic principles are the same -- no matter who is doing the scoring.

Lenders want to know if you're a good risk for their money. To determine that, they look at how many debts you have, what the totals are and your track record for repayment.

Basically, a credit score is just your credit history at one moment in time, boiled down to a number, says Craig Watts, public affairs manager with Fair Isaac Corp., the company that pioneered credit scoring and developed the FICO score about 20 years ago.

If you've had a conventional credit history for about six months, you've should have a credit score, says Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling based in Silver Spring, Md.

Calculating a FICO score

When people talk about their credit score, they should actually say credit scores. You probably have more than one.

Many banks and sizable financial institutions will develop their own formulas for measuring a consumer's credit worthiness. "Most of the large banks have developed scoring or decision systems, if not scores," says Watts.

Lenders or retailers may do the same or have a company devise or calculate scores for them, based on criteria they deem important.

Many lenders may use more than one model to make their decision, says Maxine Sweet, vice president of public education for Experian.

But while you have to share your information to get credit, lenders don't necessarily have to share your scores with you -- or the formulas they use to calculate them. The only exception: if the loan in question is a mortgage, according to the Office of the Comptroller of the Currency.

"Lenders are reluctant to share the decision-making process and apparatus," says Watts. That is nothing new, he says.

But the situation is getting better for consumers. They can purchase or view FICO scores and the formula for what goes into the equation is open to the public.

"There is a lot more transparency today than there was 10, even five, years ago," says Curtis Arnold, founder of

While the basic criteria are the same (Hint: It never hurts to pay your bills on time), other lenders will throw in different factors. For instance, some lenders will consider your salary, career field or job stability, while others don't care. Some will give you points for having lived in your home a certain number of years -- but could subtract points if you haven't lived there long enough or have lived there too long.


"There are all sorts of things we've heard of popping up," says Linda Sherry, director of National Priorities for Consumer Action, a D.C.-based advocacy group.

Your FICO score

When people talk about credit scores, they usually mean their FICO score (or something similar that uses a FICO-type numbering system). FICO is probably the most well-known scoring model and FICO scores are used by a great number of lenders.

Scores run from 300 (worst) to 850 (best), with the average hovering around 723, according to Watts.

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