how is my FICO® score calculated?


5 Factors that go into your FICO® Score

Your FICO score is one of the primary factors that determines whether you will be approved for a loan or credit card. Just as important, it also determine what interest rates you will get along with the terms of a loan. Therefore, it is critical to understand how your FICO score is calculated and what you can to maintain or improve it.

1. Payment History (35%)

The most important component to your FICO® Score is your payment history. Consistent on-time payments increases your FICO® credit score, while late payments can hurt your score. Not all late payments count the same. For example, missing a payment on your mortgage will hurt you more than missing a payment on your credit card.

Credit payment history includes
  • Credit Cards(e.g. Master Card, Macy’s Card, etc.)
  • Mortgage Loans
  • Installment Loans. These include Car Loans, Student Loans, and Personal Loans from companies like Prosper, Lending Club, or Avant.
Adverse public records

Adverse public records include bankruptcies, foreclosures, judgments, liens, or law suits against you. Any of these can hurt your credit score. Each of these events will count less over time and will eventually fall off your credit report.

2. Credit Utilization / Outstanding Balances (30%)

How much money you owe is the #2 FICO® factor that impacts 30% of the score. This credit factor really has to do with how much debt you have taken on relative to how much debt you are eligible for. For example, a $100,000 worth of debt for Bill Gates will be considered quite different from $100,000 worth of debt for a college student.

Credit Utilization

Credit Utilization is the percentage of credit you are using on revolving accounts. The lower the number, the better. Your credit utilization is calculated by adding up all the debt you have on revolving accounts like credit cards divided by adding up the total credit limits.

Assume Bill has spent $2,000 on a MasterCard with a $4,000 credit limit. He has also spent $3,000 on a Discover Card with a $6,000 credit limit. His total outstanding balance would be $5,000 ($2,000+$3,000). Bills total credit limit would be $10,000 ($4,000+$6,000). Therefore Bill’s Credit Utilization Rate would be 70% ($5,000 / $10,000).

Outstanding Balances

Similar to Credit Utilization, the Total Outstanding Loan Balance factor looks at the amount you owe on your loans compared to the original loan amounts. If for example, you took out a loan to consolidate your credit cards for $4,000 and have paid off $3,000 so far, then you only have paid off 75% of your loan, which looks much better on your credit than if you owed $3,500.

3. Credit History Length (15%)

The longer history you’ve had paying your credit card bills and loans on time the better it looks on your credit report.
What factors go into my Credit History?

  • The age of your oldest account
  • The average age of all your accounts.
EXPERT TIP: When you open a new credit card or loan, your overall credit history number will go down because you now have a brand new account takes takes the average down. This is one reason why closing older credit card accounts may not be a good idea. See more Credit Boosting Tips.

4. Credit Mix (10%)

Demonstrating that you can manage both revolving credit (e.g. credit cards) and installments loans ( loan) is positive indicator on your credit report. This may seem counter intuitive because the conventional wisdom might suggest that having only one type of debt or paying for everything in cash is best. Unfortunately, however, when it comes to credit ratings, paying for everything in cash doesn’t create the “credit trail” that gives credit agencies the information they need to determine how well you pay off your debts.

5. New Credit (10%)

Credit Inquiries

Typically the more credit inquiries a person has the more risky they might be. It could be inferred that either (a) the person is getting declined by many lenders and needs to keep applying to other companies, or (b) that the person is in the process of taking a much more debt.

That being said, it is typically ok to rate shop over a short period of time without harming your credit. For example, if you are applying for a car loan or a loan to consolidate your credit cards, it is generally ok to apply to multiple companies to find the best rate. What may harm your credit is if the credit agencies see new credit inquiries every month over a long period of time, for example.

New Accounts

When someone opens a bunch of new Credit card accounts, installment loans, etc. the person’t FICO® Score could be impacted. This is because it could be an indicator that someone’s income has gone down or expenses have gone up and the person may be less likely to pay their bills.


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