fICO scores consider
What FICO Scores Consider
Listed below are the five main categories of information that FICO scores evaluate along with their general level of importance.
- A FICO score takes all of these categories of information into consideration, not just one or two. No one piece of information or factor alone will determine your FICO score.
- The importance of any factor depends on the overall information in your credit report. For some people a given factor may be more important then for someone else with a different credit history. As the information in your credit report changes so does the importance of any factor in determining your FICO score. It is impossible to measure the exact impact of a single factor without looking at your entire report. The levels of importance shown in the description below are general in nature and will fluctuate for different credit profiles.
- Your FICO score looks only at information in your credit report. Lenders often look at other information when making a decision including your income, how long you have worked at your present job, and what type of credit you are requesting.
- Your FICO score considers both positive and negative information in your credit report. Late payments will lower your FICO score but establishing or re-establishing a good track record of making payments on time will raise your score.
How a FICO Score Breaks Down
What is your track record?
Approximately 35% of your FICO score is based on this category.
The first thing any lender will want to know is whether you have paid past credit accounts on time. This is also one of the most important factors in a credit score. Late payments are not an automatic score-killer. An overall good credit picture can outweigh one or two instances of late credit card payments. Having no late payments on your credit report does not mean you will get a perfect score. Approximately 60% – 65% of credit reports show no late payments. Your payment history is just one piece of information used in calculating your FICO score. Your FICO score takes into account:
- Payment information on many types of accounts. These will include credit cards such as VISA, MasterCard, American Express and Discover. Retail accounts from stores where you do business such as department stores. Installment loans where you make regular payments such as car loans. Finance company accounts and mortgage loans.
- Public records and collection items like bankruptcy, foreclosure, suits, wage attachments, liens, and judgments. These are considered quite serious although older items and small amounts will count less then more recent items or those with a large amount. Bankruptcies will stay on your credit report for 7-10 years depending on the type.
- Details on missed or late payments, delinquencies, and collection items. The FICO score considers how late they were, how much was owed, how recently they occurred, and how many there are. A 60-day late payment is not as significant as 90-day late payment. A 60-day payment made a month ago will effect a score more then a 90-day payment from five years ago.
- How many accounts show no late payments. A good track record on most of your credit accounts will increase your FICO score.
How much is too much?
Approximatly 30% of your FICO score is based on this category.
Having credit accounts and owning money on them does not mean you are a high risk borrower with a low FICO score. However when a high percentage of your available credit has already been used it can show that you are overextended and likely to start having trouble making payments. Part of the science of scoring is determining how much is too much for a given credit profile.
- The amount owed on all accounts. Note that even if you pay off your credit cards in full every month your credit report may show a balance. The total balance on your last statement is usually the amount that will show on your credit report.
- The amount owed on different types of accounts. In addition to the overall amount you owe your FICO score considers the amount you owe on specific types of accounts such as credit cards and installment loans.
- If you are showing a balance on certain types of accounts. Having a small balance without missing a payment shows that you manage credit responsibly and could be better then having no balance at all. Closing unused credit accounts that show a zero balance, and are in good standing, will not raise your FICO score.
- How many accounts have balances. A large number can indicate a high risk of over extension.
- How much of the total credit line is being used on credit cards and revolving credit accounts. Someone close to maxing out their credit cards may have trouble making payments in the future.
- How much have you paid down on your installment loans. If you borrowed $10,000 to buy a car and you paid down $2,000 you still owe 80% of the original loan amount. Paying down installment loans is a good sign that you are able and willing to manage and repay debt.
Length of Credit History
How established is yours?
Approximatley 15% of your FICO score is based on this category.
A longer credit history will increase your FICO score. People who have not been using credit long may get high FICO scores depending on how the rest of the credit report looks.
- How long your credit accounts have been established. Your FICO score considers the age of your oldest account, the age of your newest account, and the average age of all your accounts.
- How long specific accounts have been established.
- How long it has been since you used certain accounts.
Are you taking on more debt?
Approximately 10% of your FICO score is based on this category.
People tend to have more credit today and shop for credit online than ever before. FICO scores reflect this reality. Research shows opening several credit accounts in a short period of time represents greater risk. Especially for people who do not have a long established credit history.
Multiple credit requests represent greater credit risk but FICO scores distinguish between rate shopping and applying for a new account.
- How many new accounts you have. Your FICO score may consider what specific type of accounts.
- How long it has been since you opened a new account.
- How many recent requests for credit you have made. Inquiries remain on you credit report for two years, although FICO scores only consider inquiries from the last 12 months. FICO scores have been carefully designed to count only those inquiries that truly impact credit risk.
- Length of time since credit report inquiries were made by lenders.
- Whether you have a good recent credit history, following any past payment problems. Re-establishing credit and making payments on time after a period of late payment behavior will help to raise a FICO score over time.
Types of Credit in Use
Is it a healthy mix?
Approximately 10% of your FICO score is based on this category.
The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open credit accounts you do not intend to use. Usually the credit mix will not be a key factor in determining your FICO score but it will carry more weight if your credit report has limited information in which to base a score.
- What kind of credit accounts you have. Do you have experience with both revolving and installment accounts, or has your credit experience been limited to only one type?
- How many of each. What is the total number of accounts you have. For different credit profiles how many is too many will vary depending on your overall credit picture.