
What Is the Method for Calculating Credit Scores?
Before we can answer the big question—Does the method for calculating credit scores seem fair to you? Why or why not?—let’s define how credit scores are calculated.
Admittedly, that can be difficult. Indeed, the formulas for calculating credit scores are not public. Plus, there are all sorts of myths out there about what does (and doesn’t) hurt your credit score. In many ways, the credit-scoring system feels like a secret test, one you’re expected to pass without ever seeing the study guide. Still, there is a method behind the madness, even if it isn’t always transparent.
Let’s start with the basics …
The most widely used formula for determining a credit score is called the FICO score, which ranges from 300 to 850. This score is designed to predict how likely you are to fall 90 days behind on a payment in the next two years.
What Are the Factors that Determine Your Credit Score?
The formulas for determining a credit score are proprietary, but most experts agree that there are about 20 different factors that go into your score, and these factors can be boiled down to five primary categories that do most of the heavy lifting:

Your credit score influences everything from interest rates to job opportunities. But does the method for calculating credit scores seem fair to you? Why or why not?
1. Payment History (35%)
This is the most important factor in your credit score. It considers whether you’ve paid past credit accounts on time, how often you’ve been late, how recently it happened, and how severe the late payments were. The impact of a single missed payment depends on your overall credit history. If your report is otherwise spotless, one late payment may not do much damage, especially if you return to making on-time payments. But a sudden pattern of missed payments after years of reliability can signal financial trouble and trigger a significant drop. On the other hand, if late payments are already common on your report, another one won’t move the needle much. After all, your score is likely already low.
2. Amounts Owed (30%)
This category measures how much debt you’re carrying compared to how much credit you have available. Your score will be stronger if your credit card balances stay below 30% of your limit. (For example, with a $1,000 limit, keeping your balance under $300 will work in your favor.) Going above that threshold can signal financial strain, even if you make payments on time.
Installment loans, like mortgages or auto loans, are also factored in. Newer loans are seen as riskier than older ones because borrowers are more likely to default early on. The logic is simple: if you’ve already paid off most of your mortgage, you’re far less likely to walk away from it. The longer you’ve been making payments, the more invested you are, which means the less risky you appear to lenders.
This takes us to our next category …
Learn how your credit score is calculated and decide for yourself: Does the method for calculating credit scores seem fair to you? Why or why not?
3. Length of Credit History (15%)
The longer you’ve had credit, the better. Accounts with longevity and a stable history will help your credit score. Every time you open a new account, it lowers the average age of your accounts. But as those accounts age, they start to help your score, assuming you pay them on time and keep the balance below that 30 percent threshold.
4. Credit Mix (10%)
Lenders want to see that you can manage different types of credit responsibly. Ideally, this includes a mix of revolving credit (like credit cards) and installment loans (like a car loan or a credit rebuilder account). Ideally, a mortgage can be added to the mix, but let’s be real: Not everyone can buy a home (and not everyone wants to buy a home, for that matter).
Fortunately, there are other ways to build strong credit.
If you don’t currently have credit cards, or if you have recently declared bankruptcy, open three credit cards here.
And if you’re missing an installment account, which is a key part of your credit mix, the Credit Rebuilder Program offers a simple, credit-building solution that reports directly to the bureaus.
The bottom line: having too much credit can raise concerns, but having too little can hurt your score just as much. The credit-scoring models favor borrowers who show they can handle a well-balanced mix of accounts over time.
5. New Credit and Inquiries (10%)
Opening several accounts in a short period of time can raise concerns. Likewise, when lenders check your credit, it leaves a “hard inquiry,” which can temporarily lower your score. That said, don’t worry too much about inquiries into your credit score. For one thing, if you’re shopping for a mortgage or auto loan, multiple inquiries within a short timeframe (usually 14 to 45 days) are often counted as one to avoid penalizing rate shopping. Beyond that, inquiries usually only affect your credit score for about six months.
And this is important: Soft inquiries (checking your own score) don’t affect your credit score away. You can and should monitor your own credit score. But even with transparency tools available, it still begs the question: Does the method for calculating credit scores seem fair to you? Why or why not?
Credit Scores: You Have More Than One!
Now, here’s where things get murky.
The formulas used to calculate your score are proprietary, and they change. You might receive one score from Experian, another from Equifax, and a third from TransUnion. If you request your score directly, you’ll see a “consumer version,” which is often 20 to 40 points off from what a lender sees. If a landlord or auto dealer pulls your score, they’ll see a version tailored to their industry.
In other words, there is no single credit score—just a shifting set of numbers depending on who’s asking and why.
So … Does the Method for Calculating Credit Scores Seem Fair to You? Why or Why Not?
That’s a personal question, and one with plenty of debate. Some believe the system rewards consistency and responsibility. Others argue it punishes people for things beyond their control. One thing is clear: knowing how the system works puts you in a stronger position.