What Makes Up a FICO Score?
Your credit score is a number that represents your credit history and current credit risk. Credit scores are based on information in your credit report. They are called FICO scores because Fair Isaac Corp. developed the software that credit bureaus use to calculate them. Lenders use your credit score to decide whether they will offer you credit, how much they will lend you, and the terms and conditions of that credit, according to FICO. Scores range from 300 to 850, with a score above 750 indicating excellent credit. Credit bureaus consider categories of information in calculating your credit score.
Other People Are Reading
-
Payment History
-
Your payment history makes 35 percent of your FICO score. Payment history includes how many and which accounts you paid on time or late. If you have an account that is or has been delinquent, credit bureaus consider the amount and length of the delinquency, and how long ago you were delinquent. Late payments, foreclosures, debt collections and adverse public records (bankruptcy, judgments, suits, liens and wage attachments) damage your score and stay on your credit report for at least seven years.
Total Debt
-
Thirty percent of your score is based on how many accounts you have and how much you owe by type of account. An account could be a line of credit, such as a credit card, or an installment loan, such as a mortgage or student loan. FICO scores also take into account your credit utilization: how much of each credit limit you have borrowed, and how much you still owe on any installment loan.
-
Length of Credit History
-
FICO scores factor in the ages of your accounts and how long since you have used each account. This category makes up 15 percent of your score. A longer credit history improves your score and reduces your credit risk.
New Credit
-
Ten percent of your score is based on new credit on your credit report, including the number and proportion of accounts you recently opened and when you opened them. The number of credit inquiries on your report, and how recently they occurred, also affects your score. Credit inquiries can happen when a legitimate business checks your credit or when you check your own credit. Multiple recent inquiries, if you initiated them by applying for credit, can harm your score.
Credit Mix
-
The final 10 percent of your FICO score is calculate according to your credit mix. Having different types of credit (credit cards, retail accounts, installment loans, mortgages and consumer finance accounts) will help your score.
-
References
- "Solve Your Money Troubles"; Robin Leonard and Margaret Reiter; 2009
- Fair Isaac Corp.: Why is your FICO score so important to your financial health?
- "Guide to Surviving Debt"; Deanne Loonin; 2008
- Fair Isaac Corp.: What's in your FICO score
- Fair Isaac Corp.: How long will negative information remain on my credit report?
Resources
- Photo Credit pie graph image by Tomislav from Fotolia.com
