How Your FICO Credit Score Is Calculated
August 3, 2009 · Print This Article
Everyone needs to keep an eye on their credit. A few late payments or other financial mismanagements could change you from someone with good credit to someone with poor credit rather quickly, but do you even know how your credit score is calculated? Do you know what factors play a role? More importantly, do you know how much of a role each one plays?
The Fair, Isaac, and & Co. or FICO credit score is the one that is most often used. By learning what goes into your credit score and how much each factor sways the final result, you can take action. Your awareness of what goes into the calculation of this credit score will help you to better control the number that comes out.
Your Payment History
This includes all the pertinent details of your past payments. It includes payments made on credit cards, installment loans, retail charge cards, and your mortgage. This portion of your credit score depends on how prompt you have been in your payments.
If you have late payments, then this assessment system checks to see how recently they were made. Late payments in the past do not have as much of a negative effect as ones recently paid late. This portion also takes into account how much you still owe. The entirety of this evaluation of your credit history ends up being 35% of your overall FICO credit score.
Your Current Balances
How much do you still owe to creditors? Owing large amounts of money on multiple accounts will not have a direct effect on lowering your credit score. However, if you have reached your credit limits or are very close to doing so then this could adversely affect your credit score. Your current balances will affect 30% of your FICO credit score.
Your Credit History
This is just the history of your credit. If you have a long credit history then you are better off, assuming the history has been good. If you do not have a long credit history then you will want to work toward it. Other than that, this 15% of your credit score is mostly in the past.
Your Newer Credit
Applying for a lot of new credit accounts can hurt your credit rating easily. A FICO assessment takes into account your number of new accounts, the period of time since you opened a new credit account, and the number of inquiries there have been made on your account lately. Altogether, this comprises about 10% of your final score.
The Type Of Credit
The type of credit that you use also comes into play. You are likely to have a combination of credit accounts, but the ratios are what counts. How many credit cards, mortgages, loans, retail accounts, and such will play a role in this calculation. Up to 10% of your score can come from this information.
Your FICO score will come into play in many areas of life. You may be seeking out a loan for a house or a business. You just need to remember that your payment history, current balances, credit history, newer credit accounts, and the type of credit that you use will all help to determine your final score. Remember also that checking your score yourself will not hurt your credit and will help you to know what you have to work with.
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The U.S. may still have a triple-A rating, but its citizens aren’t doing quite as well; 25% of Americans have a credit score below 600, up from just 15% before the recession. The spike represents a serious impediment to economic recovery. Post your comment!
Not really…the acceptance will be based on the size of the offer – you should, however, probably walk in with a pre-approval (not a pre-qualification). The down payment only matters to your mortgage company – the bank selling is going to get cash either way and they won't really care as to the source of the cash.
The credit bureaus don't disclose their exact credit score calculation formulas, so it's hard to directly estimate the impact of the scenarios you laid out. However, below is the general weighting of the factors that go into a credit score calculation:
35% – An individual’s history of making credit payments on time
30% – The total amount of debt being carried along with available credit
15% – The age of an individual’s open credit lines (more history is better)
10% – The frequency with which someone applies for new credit
10% – Wild card factors such as the types of credit lines
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Bottom line is that if you want to maximize your FICO score, you need to borrow money. I think it is ludicrous that you have to borrow money to get a score. One who doesn’t borrow money shouldn’t need a FICO score to rent an apartment or get a mortgage. But, banks have done an excellent job of convincing us that the score is required, meaning we must all go into debt to do something as simple as rent an apartment. Financial responsibility is discouraged, going into debt is.
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It takes about 3 months before you see any change on your credit score. You may want to wait until then. The most accurate way is getting it directly from the source.
Fulfilling a statutory mandate to eliminate the use of credit ratings in banking oversight poses a “challenging” job for regulators, says Sheila Bair of the Federal Deposit Insurance Corp.
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Annual credit report is a good company for you to find your tri-merged credit report.
They include all three bureaus including Equifax, Experian, and Trans Union.
You can pull it for free as a "soft pull" using the resource below. Hope this helps!
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Your FICO dropped for at least 2 reasons:
1. You have a new inquiry on your report.
2. Your new account has lowered your average age of accounts.
if you are looking for the free credit score and report usa national site, check out this site
Here you can see your 3-in-1 Report from all three credit reporting agencies and your credit score.
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MarketUpdate: Zylog Systems moves up on being assigned credit ratings by ICRA
I swear it's a lot of niggas out here that think they gettin a lil money cuz they got a few dollars, man what yo credit score look like
Preventing A Bad Credit Rating: Bad credit simply refers to the weak credit ratings of consumers. These have becom…
The very first thing and the most effective thing any potential home buyer can do is to boost their credit score. Making payments on time is the number one way to lift a credit score. If the buyer lives in an apartment, put the utilities in the buyers’ own name. Take out a small credit line with a credit card and always pay the balance each month. Pay off the first car as quickly as possible. Never miss or be late on a rent payment. Simply being extra responsible with ones monthly bills can raise a credit score faster than anything else.
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Okay… I see a couple of misconceptions about the risk score versus FICO score…
Risk score – statistical model (all vary) between credit bureaus to try to come up with a grading profile based on population sampling.. Putting it simply — they try to grade your spending habits/debt/activity against the rest of the country (in a quantitative figure).. I cannot measure your Sears account, etc.. They utilize different %'s to grade each category – inquiries, revolving debt, installment accounts, etc….
FICO – Score based on statistical model from Fair Isaac Corporation. Funny thing.. this scoring model was created by Equifax. It is widely used today in completing of many higher $$ transactions (i.e. mortgage). A FICO score looks at what is on your credit report, but is different because the scoring model is applied the same over all three credit bureaus….
Now, anytime you take on new debt, your score will dip temporarily. They have to penalize you for obtaining new debt because their studies show that new debt means more risk of not being paid.. more bills means less free cash. Yes, this can refer to a car loan if you recently got one. Give it 6 – 12 months and this will improve.
Finally, a FICO score is provided by Fair Isaac Corporation (not Transunion). Transunion probably sold the score to you, but it was Fair Isaac Corp's statistical model looking at your activity on your Transunion report.
Hope that helps.. e-mail if any questions..
Its obvious from your question that you don't understand credit scores.
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Almost everyone has negatively affected credit ratings because of the economic downturn that lasted the past two years. As the economy remains stagnant and is hardly bouncing back from the bottom of this turmoil things are getting worse for people. Most people always have had scores that are good but now they are having bad scores because most of them have lost their source of income. Today, if they need to purchase a car because their old one was repossessed, their only option iss to ge…