How your FICO score is calculated is only partially known, but what is known can certainly be the armor you use to protect yourself against a plummeting number. So, the breakdown is as below, these five categories:
35% — Payment History
30% — Amounts Owed
15% — Length of Credit History
10% — New Credit
10% — Types of Credit Used
Importance of categories varies per person
For some groups, the importance of these categories may vary; for example, people who have not been using credit long will be factored differently than those with a longer credit history.
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The importance of any one factor in your credit score calculation depends on the overall information in your credit report. For some people, one factor may have a larger impact that it would for someone with a much different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your FICO®Score.
Therefore, it’s impossible to measure the exact impact of a single factor in how your credit score is calculated without looking at your entire report. Even the levels of importance shown in the FICO Score chart are for the general population, and will be different for different credit profiles.
Your credit score is calculated from your credit report. However, lenders look at many things when making a credit decision, such as annual income, time of employment, residence status, how long you’ve been a resident there, etc.
Payment history (35%)
The first, and most important thing lenders look at is your payment history. Have you paid your bills on time? Do you have a good track record of never being late? If you have several late-pays (more than 30 days), your score will drop in a hurry. Don’t worry though, if you start now, and maintain a great history, eventually your scores will recover.
Amounts owed (30%)
Having credit accounts and owing money on them does not necessarily make you high risk. In fact, a mortgage (and paying it on time) is one of the most solid things you can have going for you. The other golden rule, one we’ve discussed many times, is not having more than 30% owed on your total available credit card limits from month to month.
Length of credit history (15%)
Generally, the longer you’ve had accounts and maintained them responsibly, the higher your score will be, though there are people with very high scores who have limited history. This results from getting credit and instantly being very careful with it, always paying it on time, and paying credit cards in full month to month.
Your FICO Score takes into account:
- how long your credit accounts have been established, including the age of your oldest account, the age of your newest account and an average age of all your accounts
- how long specific credit accounts have been established
- how long it has been since you used certain accounts
Types of credit in use (10%)
The score will consider your mix of revolving (credit cards) retail accounts (such as Victoria Secret or Macy’s), installment loans (auto, student debt), and mortgage loans (the holy grail of credit, and why you ultimately want a great score).
New credit (10%)
Opening several new accounts at a time can bring your score down in a hurry, so be careful what types, and how often, you are opening new accounts.
