How is my credit score calculated?

One of the first steps to truly understanding your credit and your credit report is to get a good feel for what makes up your FICO credit score.  The main thing you need to know is that your FICO credit score is made up of five major components each with their own weight and impact on your score.  From the graph and explainations below, you will see how the different components affect your credit score:

Payment History (35%): Your payment history is the most important factor in your credit score.  This category includes the amount and severity of late payments.  The more late payments and accounts with problems in your credit history lowers the payment history portion of your credit score.

Amount of Debt (30%): The amount of money that you actually owe is the next most important component of your credit score.  Your debt is broken down into the total amount you owe, the types of accounts you have (revolving, mortgage), the number of accounts with current balances, and the percentage of the credit lines that are being used. Of course, the more debt you have, the riskier you will be viewed by credit and loan offerers.

Length of Credit History (15%): The length of time you have used credit and types of accounts is the next most meaningful factor in your credit score.  Accounts that have been open and in good standing for at least two years have a positive impact on your credit. If your credit history is short, any late payments or any problems will have a larger impact on your credit score.

Types of Credit (10%): The mix of the types of credit accounts on your credit report will also have an impact on your score.  The riskier your balance of credit accounts, the lower your score.  Revolving credit like credit cards are considered riskier that student loans or a home loan.  Each credit issuer will be more interested in their type of account when assessing you as a credit risk.

New Accounts (10%): The amount of new credit applications filled out and new accounts opened generally in the last 6 months will impact your credit score and creditors' perception about you as a risk.  The assumption here is that the new accounts could push you into dangerous territory and impact your ability to handle your new debt payments.

I hope that this helps to clarify the FICO credit scoring process. Please stay tuned for more tips and articles about the credit game and comment on what you would like to find out more about.