What is My FICO Score and How is it Calculated?

The FICO Score is a credit score most lenders use to determine
your credit worthiness and whether you are a credit risk, so to
speak.  Your FICO Score is a number that is calculated by
combining pieces of your
credit history from your report. This information is grouped
into five different categories using percentages to reflect the
importance of each piece of data.  Your FICO Score considers
both positive and negative
information contained in your credit report.  Obviously,
late payments and other negative information will lower your FICO
Score, but establishing or re-establishing a good track record of
making timely payments will help raise your score over
time. 

FICO breaks down your score into Payment History, Amounts Owed,
Length of Credit History, New Credit and Types of Credit
Used.  The importance of each category varies depending on the
consumer.  For example a consumer with a new credit history
will be factored differently from a consumer who has been using
credit for a long period of time.  The importance of any one
factor in your credit score calculation depends on the overall
information contained in your credit report.  For some people,
one factor may have a larger impact than 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.

1. 1.  Payment History (35%)
   The first thing any lender wants to know is whether you’ve paid
   past credit accounts on time.  This is one of the most
   important factors used in determining your score.
2. 2.  Amounts Owed (30%)
   Having credit accounts and owing money on them does not necessarily
   mean you are a credit risk but instead your score is determined by
   reviewing how much is owed on each account in comparison to your
   credit limits.
3. 3.  Length of Credit History (15%)
   In general, a longer credit history will increase your score,
   however, even people who haven’t been using credit long may have a
   high FICO Score, depending on how the rest of their credit report
   compares.  For example your score looks at the length of time
   your old account has been established, the age of your newest
   account and an average age of all your accounts.
4. 4.  New Credit (10%)
   Research shows that opening several credit accounts in a short
   period of time represents a greater risk – especially for consumers
   with minimal credit history.
5. 5. Types of Credit in Use (10%)
   Your FICO Score takes into account a mixture of credit cards, store
   accounts, installment loans, finance company accounts and mortgage
   loans.

For information on viewing your credit report for accuracy and
scores, review our blogs Reviewing
Your Own Credit Reports and  What
Qualifies as a “Good” Credit Score.

If you are having issues with your credit report and need the
advice of experienced attorneys, contact SmithMarco P.C. for a free case review.