How Is My Credit Score Calculated?

Having a good credit score is one of the keys to financial freedom. With it, you may qualify for better interest rates from lenders on credit cards and loans. It can even help you land an apartment since landlords may use credit scores to decide who to rent to. A higher credit score may suggest that you’re a responsible borrower and the type of person who can be trusted.

What’s a credit score?

Your credit score is a 3-digit number that rates your credit history and related factors—a measure of your creditworthiness. Its purpose is to let lenders and others know how risky it might be to extend credit to you.

In the US, 2 main companies lead the credit scoring industry with credit scoring models: FICO® and VantageScore®. While both companies determine credit scores and measure them in a range from 300 to 850, they calculate them slightly differently. 

Here’s the bottom line: The higher your score, the better your credit. Some lenders use custom credit scores, which are usually built on the same criteria as FICO® and VantageScore®, and are tailored for specific lenders or industries, such as auto loans. Lenders decide their own credit score requirements. However, scores under 580 are generally considered to be poor, while “good credit” is usually anything over 670. A score over 800 is excellent. 

How is my credit score calculated?

Five factors are used to determine your credit score: 

1. Payment history: Do you usually make on-time payments, or do records show missed payments?
2. Amount owed: How much debt do you owe right now? How does it compare to your available credit? (That’s called your credit utilization ratio.)
3. Length of credit history: How long have you been managing credit? In other words, how much experience with credit do you have?
4. Types of credit: What’s your credit mix? Do you have different types of accounts? Those can range from credit cards to various loans, including student loans, mortgage loans, auto loans and lines of credit.
5. New credit accounts: How much of your debt is new? Have you opened several new accounts in a short period of time? 

These 5 categories may be weighed differently, depending on the type of score.

How can I improve my credit score?

A good first step is to look at your credit reports. Each major credit bureau—Equifax®, Experian® and TransUnion®—compiles information from lenders who have given you credit. The report shows the number and types of credit accounts you use, how long they’ve been open and whether you make on-time payments. Your credit report is a summary of open and closed accounts, outstanding balances, recent credit inquiries and negative items (late payments, missed payments, bankruptcy, tax liens, etc.).

Currently, you can order 1 free credit report a week from each bureau. (Order through the government-authorized www.annualcreditreport.com.) Review your reports to identify errors, bad credit behavior and fraudulent activity, which could be an indication of identity theft.

If you don't have much credit history, consider using the recurring payment reporting tool powered by Bloom+, available within Navy Federal’s digital banking.* You could build your credit profile by reporting up to 5 payments you’re already making, like rent, utilities and phone bills.^{Footnote 1} These payments aren’t automatically reported to the eligible credit bureau,^{Footnote 2} but after linking the reporting tool to your Navy Federal accounts, they will be. Plus, you have full control over which bills get reported.

Navy Federal Credit Union’s Mission: Credit Confidence® Dashboard is an excellent resource for monitoring your credit score. You’ll get monthly updates, notifications on score changes and tips to improve it. This kind of comprehensive view makes improving your credit much easier and can help increase your credit confidence.