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How Your Credit Score is Calculated

What is Used to Calculate a Credit Score?

All 3 Credit ScoresCredit scores take into account various factors in a person’s financial history. Although the exact formulas for calculating credit scores are closely-guarded secrets, FICO has disclosed the following components and the approximate weighted contribution of each.

35 Percent is Payment History. Late payments on bills, such as a mortgage, credit card or automobile loan, can cause a consumer’s FICO score to drop. Paying bills as agreed over time will improve a consumer’s FICO score.

30 Percent is Credit Utilization. The ratio of current revolving debt, such as credit card balances, to the total available credit limit. Consumers can improve their FICO scores by paying off debt and lowering their utilization ratio. The closing of existing revolving accounts will typically adversely affect this ratio and therefore have a negative impact on their FICO score.

15 Percent is Length of Credit History. As consumer’s credit history ages, assuming they pay their bills, it can have a positive impact on their FICO score. In general, a longer credit history will increase your FICO score.

10 Percent is Types of Credit Used. Consideration is taken on the mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. Consumers can benefit by having a history of managing different types of credit.

10 Percent is New Credit. Multiple credit inquiries for a consumer seeking to open new credit, such as credit cards, retail store accounts, and personal loans, can hurt an individual’s score. Applying for lots of new credit in a short period of time is also viewed as risky and can cause a drop in an individual’s score. However, individuals shopping for a mortgage or auto loan over a short period will likely not experience a decrease in their scores as a result of these types of inquiries.