How Your Credit Score Is Calculated

A credit score is calculated by analyzing all the pieces of information in your credit record and summarizing them in a number. Your credit score will be used – along with your credit report and other information from your mortgage application – to determine whether you will get a mortgage to buy or refinance your home. Your credit score also may be used to determine the interest rate you get on your mortgage.

The most commonly used credit score today is known as a "FICO" score. A company named Fair, Isaac & Co. developed a mathematical way to look at factors in your credit record that may affect your ability and willingness to repay a debt.

These factors can include your record of repaying loans, i.e., student loans, car loans and credit card bills; any public records you might have, like tax liens and bankruptcies; how often you apply for installment loans and new credit cards; and how much you actually owe. For example, if you charge up to the limit on your credit cards – even if combined they don't seem to add up to a lot of money – this might hurt your credit score. Or, if you have recently applied for several credit cards, including department store payment plans or credit cards – even if you haven't begun to use them yet – your credit score might be affected negatively.