How Are Credit Scores Calculated?
Your credit report is the basis of your FICO® score. The report details your credit history as it has been reported to the credit reporting agency by lenders who have extended credit to you, by court records and by you. The FICO score analyzes information from the trade line, inquiry, and public record and collection sections of your credit report.
A FICO score evaluates five main categories of information in your credit report, and compares this information to the patterns in hundreds of thousands of past credit reports. These five categories are, in order of importance:
1. Payment history — what is your track record? 35 % of the score
Risk predictors here look at:
• Severity – how bad are the delinquencies?
• Recency – how recent are they?
• Frequency – how many times did it occur?
2. Amounts owed — how much is too much? 30% of the score
Risk predictors here look at:
• Large outstanding balances
• The ratio of balances to credit limits
3. Length of credit history — are you established? 15% of the score
Risk predictors here look at:
• Age of the trade lines - (the age of the oldest account, the average age of accounts, or both).
4. New credit — are you taking on more debt? 10% of the score
Risk predictors here look at:
• Number of inquiries and new account openings
5. Types of credit in use — is it a healthy mix? 10% of the score
Risk predictors here look at:
• Number of trade lines reported for each type: bankcards, retail, department store cards, installment loans, etc.