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How Is A Fico Score Calculated?

Updated: Mar 1

Your FICO Scores are calculated using five categories: payment history, amounts owed, length of credit history, new credit and credit mix. The algorithm to produce a score is based on these five categories in your credit profile. Learn how you can manage your credit report by knowing what credit accounts impact your score the most.

1) 35% Payment history-are bills paid on time? Collections reporting?

The first thing any lender wants to know is whether you've paid past credit accounts on time. This helps a lender figure out the amount of risk it will take on when extending credit. This is the most important factor in a FICO Score.Be sure to keep your accounts in good standing to build a healthy history. (If you have a late reporting on an account, call and request a “goodwill removal” of the late and if a collection is reporting in the last 24 months, call and request them to delete it, if you agree to pay it or provide documentation you don’t owe it. Get it in writing. Record your call.)

2) 30% Credit Utilization -the amount reported once a month by credit cards as a balance versus the limit on the card. (Keep the balance between 5-19% of the limit for optimal results.)

Having credit accounts and owing money on them does not necessarily mean you are a high-risk borrower with a low FICO Score. However, if you are using a lot of your available credit, this may indicate that you are overextended—and banks can interpret this to mean that you are at a higher risk of defaulting.

3) 15% Length of history-takes into account the date opened for all accounts open or closed but with a balance. (That’s why when you close an account you opened in 2006 and have used in the last 24 months, your credit score drops! You just lost all that time since it was opened.)

In general, a longer credit history will increase your FICO Scores. However, even people who haven't been using credit for long may have high FICO Scores, depending on how the rest of their credit report looks.

Your FICO Scores take into account:

  • How long your credit accounts have been established, including the age of your oldest account, the age of your newest account and an average age of all your accounts

  • How long specific credit accounts have been established

  • How long it has been since you used certain accounts

4) 10% Account diversity- do you have a mix of revolving accounts, installment accounts, auto and/or mortgage?

(Just remember you want 2-3 revolving accounts because that is used in 30% of the score algorithm. Revolving are credit cards. Installment loans have a set payment every month for a specific term. Mortgages and Auto are other types of accounts factored in.)

FICO Scores will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. Don't worry, it's not necessary to have one of each.

5) 10% New accounts or Inquiries.-don’t apply for new accounts unless you are sure you will be approved and

Make sure to check your report on to make sure the inquiries were approved by you. Research shows that opening several credit accounts in a short amount of time represents a greater risk—especially for people who don't have a long credit history. If you can avoid it, try not to open too many accounts too rapidly.

FICO® Score Ranges: Score Ranges According To Experian

Remember these five categories and you will always know the rules of the game!

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