Understanding Credit Score Algorithms

Katie DuncanSeptember 9, 2022

Reviewed By: Amplify

Child looking at chalkboard with math on it

Your credit history comes into play anytime you want to take out a loan or open a new credit card. Lenders use your credit report to determine whether they should offer you credit and at what interest rate.

Whether it’s a credit union, a credit card company, or a car dealership, these lenders will look at your credit report to learn how you’ve managed your finances in the past. In other words, your credit history helps lenders determine the level of risk involved when lending you money.

But what does your credit score have to do with your history? And how do they come up with the number?

What is the credit score algorithm?

Your credit score isn’t an arbitrary number. It is calculated using an algorithm—a mathematical formula that credit bureaus and other organizations have created. Credit score algorithms consider multiple aspects of your history, such as your total amount of debt, any derogatory items on your report, and the types of credit accounts you have—both present and past.

The most common credit scoring factors on your credit report are:

  • Your payment history: Your credit score will reflect the on-time payments you make as well as late or missed payments. Payment history is the most highly weighted factor used to calculate your credit score.
  • Credit utilization ratio (capacity): This compares the total amount of credit you’re currently using with the total amount of credit you have available. For the best credit score, you want to keep your balances less than 30% for each account. For example, if you have a credit card with a $10,000 limit, be sure to keep the balance for that card below $3,000.
  • Total debt: This is the sum of your debts, including loans, collections, credit cards, and other credit accounts.
  • Credit mix: This looks at the different types of credit accounts you’re using (like a mortgage, an auto loan, a credit card, store credit, etc.).
  • Account age/depth of credit: Lenders want to see an established history with on-time payments — and how old your credit accounts are is important.
  • Hard inquiries: When someone runs a credit check on you, this is known as a hard inquiry. Multiple inquiries in a short period of time can affect your score negatively.
  • Public records: This can include tax liens, bankruptcies, or civil judgments.

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Are all credit score algorithms the same?

Credit scores don’t always seem straightforward, and, to further complicate matters, you might be surprised to learn that not all credit scores are the same.

FICO vs. VantageScore

FICO and VantageScore are two popular credit scoring methods. They each use different algorithms to calculate credit scores.

FICO Scores

A FICO score is a credit score first introduced in 1989 by the Fair Isaac Corporation, known as FICO. Today, 90% of top US lenders use FICO. The model is based on credit scores from Equifax, Experian, and TransUnion. Your FICO score is determined by evaluating five sections of your credit report, which are weighted as follows:

  • Payment history: 35%
  • Outstanding debts: 30%
  • Length of your credit history: 15%
  • Types of credit you’ve used: 10%
  • Amount of new credit: 10%

All FICO scores use this general breakdown. However, the importance of each category can vary from person to person. For instance, if you haven’t been using credit long, your factors may be weighed differently than someone who has been using credit cards and paying off loans for decades.

Additionally, the company periodically comes up with updates to their algorithm that incorporates new features, leverages new technologies in risk prediction, and reflects current consumer credit behaviors. They number these updates to keep track. This is why you’ll see scores like FICO Score 9, FICO Score 8, etc.

Different loans and types of credit demand a different FICO algorithm. For instance, some mortgage lenders use the FICO Score 3 to determine your qualification.


The VantageScore credit scoring model was first introduced in 2006. VantageScore was developed as a joint effort by Equifax, Experian, and TransUnion to create more predictive and consistent credit scoring. This score is used widely by credit card companies, as well as some lenders.

Your VantageScore is determined by evaluating your credit report, weighted as follows:

  • Payment history: 40%
  • Depth of credit: 21%
  • Credit utilization: 20%
  • Balances: 11%
  • Recent credit: 5%
  • Available credit: 3%

Like FICO, VantageScore periodically updates their algorithm. The breakdown above is used to calculate your VantageScore 3.0, the most widely-used version of the Vantage Score.

More Types of Credit Scores

Believe it or not, there’s even more to your credit score than all of this!

In addition to the two credit scores we’ve already discussed, you also have a distinct credit score with each of the credit reporting agencies: Equifax, Experian, and TransUnion. Your credit score with each of these agencies is likely very similar; however, it is possible there may be some discrepancies.

Each uses the same FICO algorithm. Experian simply calls it “FICO or FICO 2,” Equifax uses “Beacon,” and TransUnion’s model is named “Empirica.”

Additionally, there are specialized credit scores that lenders use for specific types of loans. For example, if you’re applying for a car loan, a lender will look at your Auto Enhanced score—this type of score gives more weight to how you’ve paid previous auto loans. In other words, if you paid your mortgage and credit card payments in full and on-time yet your car loan payment was always late, that would be reflected in your Auto Enhanced score.

Keep Track of the Right Scores

All this information probably seems overwhelming. So, we have two pieces of advice for you:

Keep track of your credit score. Regardless of whether you use a free service like Credit Karma or pay for a subscription like MyFICO, regularly checking your credit report can help you discover mistakes or fraud. We recommend checking your credit report at least twice a month. This way, you can take action if you notice something out of place. Since clearing up discrepancies on your credit report can take months in some cases, you’ll want to deal with any issues as soon as possible.

Looking to qualify for a specific financial product? Find out which credit score your lender uses and then focus on improving the elements that specific algorithm uses.

Improving your credit report and score can take time. Check out “Take Control of Your Finances: Part Two” for more information on how you can improve your credit history!

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Katie Duncan

Katie Duncan is a financial writer based in Austin, Texas. Her articles include financial advice for freelancers, homebuyers, and more. When she’s not writing, Katie loves traveling and exploring the outdoors with her friends and her dog, Poe.