How Your FICO Credit Score Is Calculated

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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