Calculating Personal Credit Score

Posted By Kalamata Capital LLC || 8-Dec-2016

Credit scores use data from an individual’s credit profile to classify the individual’s ability to pay back debt. Credit scores are used in almost every lending decision. This blog will look into what categories are used to calculate a credit score in order to help people understand how to maintain a strong score.


In general, credit scores range between 300 and 850; scores over 720 are considered excellent. The three main credit agencies used for calculating credit scores are Experian, Equifax, and TransUnion. Each agency will come up with a different score due to differences in their algorithms and the amount of accessible information.

A credit score uses five different categories to grade an individual’s risk rating. The five categories are payment history, amount of debt, length of credit history, credit inquires/newly acquired debt, and credit diversity. The weight of each category will vary between individuals based on the amount of information available in their credit profile. The categories will be explained in order from most significant to least significant.

Payment History

Payment history is the highest weighted category when calculating a credit score. The category is further broken down into two items. First, the credit report lists the payment history from all debt accounts. The calculation looks at total missed payments, total late payments, and the amount of time since the last missed/late payment.

Payment History also looks at the individual’s public record. Any bankruptcies, lawsuits, foreclosures, liens, or judgments are factored into the score.

Amount of Debt / Debt Burden

Credit scores look at an individual’s outstanding balances to determine whether the individual is overleveraged and at risk of default. To determine this factor, the credit report will show how many debt accounts are open and how large the remaining balance is. It will also examine how frequently each credit card/line of credit is used and the revolving balance.

Length of Credit History

The score also takes into account how long each debt structure has been open and the amount of time since last use. It will look at the average age of all credit accounts as well as the age of the newest and oldest accounts.

Credit Inquiries/ Newly Acquired Debt

Credit scores look at the number of newly opened credit accounts and the amount of credit inquires on the credit report. Opening multiple accounts in a short period of time is viewed as high risk. Creditors pull a credit score when an individual applies for new credit. Therefore, credit scores look at the last 12 months of credit inquiries as a representation of how many times an individual has applied for new accounts.

Types of Credit

The credit score also looks at an individual’s diversity of credit accounts. Keeping a healthy balance of retail accounts, credit cards, mortgage loans, and installment loans will positively impact the score. Whereas overleveraging any one type of debt will negatively impact the score.


In order to maintain a strong credit score, it is important to utilize debt responsibly. Try to avoid maxing out credit lines and applying for new credit rapidly, within a short period of time. Avoid closing out old credit accounts as that will shorten the average age of debt.

All three of the major credit agencies allow individuals to pull their credit once a year for free. It is important to make sure all the information is correctly reported to the credit agencies to ensure the credit score is accurately calculated.

Kalamata provides small and medium sized businesses with various commercial (no personal or consumer) financing solutions. Although some financing providers may focus on personal credit scores, Kalamata focuses on characteristics related to the businesses being reviewed and other aspects to help small business owners review their financing options. Call (844) 551-7511 today.

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