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. Most 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. Scores range from 300 to 850, with a score above 750 considered excellent credit. Credit bureaus consider the following categories of information in calculating your credit score:

1) Payment History – Your payment history makes up 35% 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 lawsuits, liens and wage attachments) damage your score and stay on your credit report for at least 7 years.


2) Total Debt – 30% 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 car loan, a mortgage or student loan. FICO scores also take into account how you use your credit: how much of each credit limit you have borrowed (this is called capacity) and how much you still owe on any installment loan.


3) 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% of your score. A longer credit history improves your score and reduces your credit risk.


4) New Credit – 10% of your score is based on new credit on your credit report (accumulation of debt in the last 12-18 months), including the number and proportion of accounts you recently opened and when you opened them. The number of credit in inquiries on your report, and how recently they occurred, also affects your credit score. Credit inquiries can happen when a legitimate business checks your credit.. Multiple recent inquiries, if you initiated them by applying for credit, can harm your score.

5) Credit Mix – the final 10% of your FICO score is calculated according to credit mix. Having different types of credit (credit cards, retail accounts, installment loans and mortgages will help your credit.

What Doesn’t Affect Your Credit?
- Debt Ratio
- Income
- Length of residence
- Length of employment

What actions will hurt the score?
- Missing payments (regardless of dollar amount.. it will take 24 months to restore credit with one late  pay)
- Credit cards at capacity (ex. maxing out credit cards)
- Closing credit cards out (this lowers available capacity)
- Shopping excessively for credit
- Opening numerous accounts in a short period of time
- Having more revolving loans in relation to installment loans
- Borrowing from finance companies


How can you improve your score?
- Pay down on credit cards
- Do not close out credit cards because capacity will decrease
- Continue to make payments on time (older late payments will become less significant with time)
- Slow down on opening new accounts
- Acquire a solid credit history with years of experience
- Move revolving debt to installment debt


Source: www.myFICO.com