What Matters in my FICO Score?

There’s a lot to discuss as it pertains to HOW your FICO® scores are determined, so I’m just going to jump right in.  There are five categories that make up the “points” in your FICO credit scores. They are listed below along with the relative value of each:

Payment History – 35%
Amounts Owed – 30%
Length of Credit History – 15%
Credit Inquiries or pursuit of new credit – 10%
Mix of Credit– 10%

Or if you prefer a graphical representations then here’s the infamous FICO pie chart, right off the FICO website…






These are the keys to your FICO score health and you should be concerned about them and understand them as best as you can. The first two are payment history and the amount you owe, which represents almost two thirds of the score.  They’re the equivalent of the steak in your steak dinner…right?

Payment history –This category how you pay your bills (currently and in the past), how many times you were delinquent and how severe those delinquencies were.  Were you past due two times in the past year?  Were those late payments 30 days late, or 90 days late?  As you can imagine Public records (bankruptcy, judgments, tax liens), Charge-offs, collections, repossessions, foreclosures, settlements and excessive late payments (the FICO 7 Deadlies) can be very harmful to your credit scores.  Negative history is removed between 7 and 10 years from your credit report. And, your behavior over the past two years has the most impact on your score. The best rule is to pay your bills on time.

Amounts owed – This is second on the list and counts for 30% of you score points. It looks at what you currently owe and how much of your available credit (credit limit) you have used, or your utilization.  Utilization is the amount you owe compared to your credit limits.  The more you use of your available credit, the more risky you are considered. If you have used most of your available credit, you have no more credit remaining and may not be able to pay your bills. The amounts you owe by type of account such as credit cards and installment is also considered. You don’t want to use most of your credit; a good ratio is below 10%. You should pay your bills in full.  Also in this category is the number of accounts you have with a balance.  Fewer is better!

Length of credit – This is the length of time you have had accounts, and the number of accounts. The score also looks at the average length of time you have had accounts.  The longer you have had credit, the better.   If you are new to credit, be cautious adding more credit. Be patient and over time you will have more history to help stabilize your scores.

Credit inquiries/ pursuit of credit – This evaluates your credit shopping activity.  An inquiry is posted on the credit report when you seek credit (name of the company who pulled your credit reports, and the date).  This occurs when you fill out an application for a loan, cell phone or credit card; and when you shop for loans or apply for instant credit at a retail store.

Mix or types of credit used – This is the mixture of the accounts that you have such as revolving and installment. Installment loans are usually mortgage and vehicle loans.  Revolving is bank and retail credit cards. Consumers with a combination of these accounts are considered less risky than those with just one type.  Account diversity is good.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.



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