What Makes Up Your FICO Score?

By: Timothy McFarlin | Published: September 14th, 2009 | Category: Bankruptcy

There are 5 main categories of information that FICO scores evaluate. They are: payment history (which makes up 35%), amounts owed (30%), length of credit history (15%), new credit (10%), and types of new credit in use (10%).
These percentages are based on the importance of the five categories of the general population. For particular groups of people, the relative importance of these categories may be different (for example, someone who has not been using credit for that long).

1. Payment History: This is one of the most important factors in a credit score. Your FICO score takes into account payment information on many different types of accounts such as credit cards, retail accounts, installment loans (i.e. car loan), finance company accounts and mortgage loans. Bankruptcies, foreclosures, suits, liens, and judgments are considered quite serious although older items and items with small amounts will count less than more recent items or those with larger amounts. Your FICO score also considers public record and collection items and details on late or missed payments. It looks at how late they were, how much was owed, how recently they occurred and how many there are. A 90-day late payment is more significant then a 60-day late payment, but a 60-day late payment made just a month ago will affect your score more than a 90-day late payment 4 years ago. Obviously, if you have no late payments on most or all accounts, your FICO score will increase. It does not mean you will have a perfect score though, because payment history usually makes up only 35% of your score.

2. Amounts Owed: When a high percentage of a person’s credit has already been used, this usually means that the person is overextended and is more likely to make some payments late or not at all. Your FICO score takes into account whether you are showing balances on certain types of accounts. In some cases, having a very small balance without missing a payment shows you have managed credit responsibly, and may be slightly better than carrying no balance at all. On the other hand, closing an unused credit account that has a zero balance and that is in good standing will most likely not raise your credit score. Also, for example installment loans, paying them down quickly is a good sign that you are able and willing to manage and repay debt.

3. Length of Credit History: In general, a longer credit history will increase your FICO score. Your FICO score considers the age of your oldest account, the age of your newest account, the average age of all of your accounts, and how long it has been since you have used certain accounts.

4. New Credit: Multiple credit requests or opening several credit accounts in a short period of time represents greater risk. Your FICO score looks at how many new accounts you have by type of account (for example how many newly opened credit cards you have), if you are re-establishing your credit by making payments on time after a period of late payments, and how many recent requests for credit you have made. This is indicated by inquiries made to the credit reporting agencies, which remain on your credit report for two years, but FICO only considers inquiries within the last 12 months. For most people, one additional credit inquiry will take less than five points off of their score. Your FICO score does not count an inquiry when you order your credit report or score from a credit reporting agency, and it does not count inquiries made by lenders in order to make you “pre-approved” for a credit offer or to review your account with them.

5. Types of Credit in Use: It is not necessary to have a mix of accounts (credit cards, retail accounts, installment loans, mortgage loans), and it is not a good idea to open credit accounts you don’t intend to use. Your FICO score will consider what kinds of credit accounts you have; if you have experience with revolving and installment types of accounts or if your experience has been limited to only one type. It also considers the total number of accounts you have. For different credit profiles, how many is too many will depend on your overall credit picture.

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