How Credit Scores Are Calculated and Why They Change

How credit scoring models work

Credit scores compress a large set of credit-report details into a single number lenders can use quickly. The two dominant scoring systems are FICO and VantageScore; each uses similar inputs but different algorithms. Because models and vendor-supplied versions vary, your score can differ across lenders and services (for example, a bank-provided score vs. your score on a consumer site). (FICO — https://www.fico.com, VantageScore — https://vantagescore.com)

Both models use account-level data reported by lenders to the three national credit bureaus (Equifax, Experian, TransUnion). Each bureau may have slightly different information, so scores based on different bureau files may diverge.

Sources for consumers: get your official credit reports free at AnnualCreditReport.com and review guidance from the Consumer Financial Protection Bureau (CFPB — https://www.consumerfinance.gov).

The five core factors and typical weights

Most widely used FICO-score guidance divides the score into five categories with approximate weightings. These are helpful rules of thumb, but remember: exact weights depend on the scoring version and the lender’s chosen model.

• Payment history (~35%): Lenders want reassurance you pay on time. Missed payments, collections, and public records cause the largest, longest-lasting damage.
• Amounts owed / Credit utilization (~30%): This measures how much of your available revolving credit you use. Lower utilization (a common target is under 30%, and under 10% for optimal scores) signals lower risk.
• Length of credit history (~15%): Older accounts and longer average account age strengthen a score; new accounts and short histories can lower it.
• New credit (~10%): Hard inquiries for new loans/cards and recently opened accounts indicate new risk and can cause temporary dips.
• Credit mix (~10%): A combination of installment loans (mortgage, auto) and revolving accounts (credit cards) can help, particularly if you manage them responsibly.

VantageScore uses similar inputs but emphasizes recent behavior more heavily in some versions; expect differences of a few points to dozens of points depending on your profile.

Why your credit score changes (the most common causes)

1. Reporting timing and updates

• Lenders typically report account balances and payment status monthly. A high balance reported before you pay will raise utilization and can lower your score until the next report.

1. Payment events

• A late payment (30+ days) can cause a large drop and remains on the report up to seven years. Paying after a late mark does not automatically remove it, though it stops further negative reporting once current.

1. Changes in credit utilization

• Using more of your available credit raises utilization and can lower your score quickly. Conversely, paying down balances often produces a fast improvement.

1. New accounts and hard inquiries

• Each hard inquiry can shave a few points and multiple inquiries in a short period amplify impact; certain shopping-related inquiries (mortgage, auto) are typically grouped for rate-shopping and treated more leniently.

1. Closing accounts or changing limits

• Closing an old card can shorten your average account age and reduce total available credit, increasing utilization and possibly lowering your score.

1. Collections, charge-offs, and public records

• Collection accounts and charge-offs are severe negatives. Public records like bankruptcies can stay on file for up to 10 years depending on type; many other public items (civil judgments, tax liens) have seen reporting changes in recent years but still can affect lending decisions.

1. Credit mix shifts

• Paying off an installment loan and not replacing it can temporarily reduce your credit mix score component.

1. Identity problems or errors

• Merged files (mixed files), stale reporting, or outright errors can create sudden, unexplained shifts. Regular review helps catch these quickly.

Practical timeline: how long changes take to appear

• Balances and utilization: typically update when a creditor reports (monthly). You can see a change within days to a month after paying down a balance.
• Hard inquiries: visible immediately and usually affect score for about 12 months; they remain on the report for two years.
• Late payments: a 30-day late can impact your score soon after the creditor reports it and may remain for seven years.
• Collections and charge-offs: reported after the account passes a delinquency threshold and remain up to seven years from the original delinquency date.
• Bankruptcies: Chapter 7 can remain up to 10 years; Chapter 13 up to 7 years (check current reporting rules and local variations).

For official timelines, see CFPB and FICO resources (CFPB — https://www.consumerfinance.gov/; FICO — https://www.fico.com).

Real-world examples and what I’ve seen in practice

• Small balance payoff: In my practice, clients who pay a single high-credit-card balance from 90% utilization to 10–20% often see a 40–80 point increase within one billing cycle because utilization and recent activity matter a lot.
• One missed rent or utility payment: If a landlord or utility reports to the bureaus and it becomes a collection, the score can drop sharply; sometimes a negotiated removal after payment works, but you must confirm in writing.
• Multiple new cards for rewards: Opening three new cards in six months frequently lowered scores for clients due to hard pulls and reduced average account age; the long-term benefit depends on responsible use and how long the accounts stay open.

Actionable steps to stop drops and build your score

1. Pay on time, every time: Set autopay or reminders. Payment history is the single largest factor.
2. Lower utilization before a major application: Pay down revolving balances to under 30% — ideally under 10% — in the billing cycle before a mortgage or auto loan application.
3. Keep old accounts open unless there’s a good reason to close them (high fees, fraud exposure).
4. Space out new credit applications, and combine rate-shopping windows when possible (mortgage/auto).
5. Monitor your reports regularly and dispute errors quickly. See our guide on reconciling credit report errors for a step-by-step approach: reconciling credit report errors.
6. Learn to read your report: understanding account codes and sections prevents misinterpretation — start with our primer on reading the three sections of a credit report.
7. Consider a credit freeze or fraud alert if you suspect identity theft. A freeze blocks new credit applications but must be lifted for new applications and can affect loan processing times.

Common misconceptions (clarified)

• “Checking my credit hurts my score.” False. Checking your own report or using a soft-score check does not affect your score (soft inquiry).
• “All credit scores are the same.” False. Scores differ by model and data source; use the lender’s disclosed model when possible to forecast impact.
• “I can quickly remove a correct negative.” False. Accurate negatives remain for set periods (most negatives: ~7 years); removing them requires valid legal or reporting errors.

If something looks wrong: how to dispute and repair

1. Gather documentation showing the error (statements, payoff letters, identity documents).
2. File a dispute with the bureau reporting the error (Equifax, Experian, TransUnion) online or by mail.
3. Send supporting documents and request specific changes; follow up persistently.

For an in-depth, step-by-step walkthrough on disputing and reconciling errors, read our guide: Reconciling Credit Report Errors: A Step-by-Step Guide.

When to get professional help

If you find complex errors, identity theft, or need negotiation with a creditor (settlements, pay-for-delete offers), consider a certified credit counselor or a consumer attorney. In my experience, affordable credit counseling programs can help create a realistic budget and negotiation plan that improves both credit behavior and outcomes.

Final checklist before a major loan application

• Pull all three credit reports and review for errors (AnnualCreditReport.com).
• Reduce card balances to lower utilization at least one billing cycle before applying.
• Avoid new credit applications for 6–12 months before mortgage or auto financing, if possible.
• Have documentation ready for recent large payments or account changes (to show underwriters if needed).

Professional disclaimer: This article is educational and general in nature. It does not replace personalized advice from a certified financial planner, credit counselor, or attorney. For tailored recommendations, consult a qualified professional.

Authoritative sources: Consumer Financial Protection Bureau (CFPB — https://www.consumerfinance.gov), FICO (https://www.fico.com), VantageScore (https://vantagescore.com), and official guidance available at AnnualCreditReport.com.