The formula for calculating your credit score is a mathematical equation. This equation is not released to the public out of fear that people will use the information to make sure they have a good credit score.



You would assume the credit bureaus would want people to have a good credit score. However the credit bureaus customers are the lenders. It is in the lenders interest for the borrower to have damaged credit. This way they can charge higher interest rates and earn a bigger profit.

Below are the five factors the credit bureaus use when calculating your score. You will also find the approximate weight that each factor carries in the equation.

1. Payment History (40%)

This is the most important. Your credit report shows your balance, your payment history, your credit limit and the minimum payment.

If your credit card is constantly maxed out, then your score will be lower. However if you can make hefty payments on your balance this can help your score.

Negative items fall into this category. You should remove any negative items. This is accomplished by settling the debt or disputing the accuracy or validity of the item.

I suggest trying to dispute the listing first. If the listing is verified then settle with the lender and in exchange for your payment get them to agree in writing to remove the negative listing from your credit report.

2. Ratio of Debt to Available Credit (30%)

This means are all your credit cards at their credit limit? How much credit do you have that is not being used?

If you can show the credit bureaus that you have available credit it will help your score. I suggest keeping a credit card balance at 10% of your limit. This helps because you are showing that you use your credit and you use it responsibly.

3. Pursuit of New Credit (10%)

How often is your credit run? If it looks like you are constantly having your credit checked your score will be lowered.

It is reflected in your credit report every time someone checks your report. So if you are buying a new car every six months or switching your phone plans it will not help.

The credit bureaus expect to see some inquires for your report.

Just try to make sure your credit is not being checked on a regular basis. There are people that buy cars and trade them in every three months and switch their phone plans regularly. For those their score will be lowered because of this.

4. Credit Experience (10%)

Do not worry about this factor. It only shows the purchases that you have made using your credit.

This means what purchases have you used your credit on? Do you have a car loan, credit card, mortgage, and etcetera? It is said the more diverse this is the better however this will not impact your score much.

5. Length of Credit (10%)

How long has your credit been used? Have you just recently made your first purchase using your credit?

This is another factor that you can not influence much and will not make or break your credit. If you are a newbie to the credit world you can still have a very high credit score.

In sum, these are the 5 factors and their corresponding approximate weight. The first 2 factors are the only factors you should concern yourself with.

If you take care of those, then your credit score will be high and you will experience the benefit of having a high score. Such as automatic approval for almost every purchase, low interest rates and even rewards for using your credit card.