FICO Credit Scoring Revealed

As most of us know, the FICO credit score is the number that represents the creditworthiness of a person. Banks and credit card companies use the credit score to calculate the potential risk of lending to consumers. This article exposes the mathematical breakdown of the credit score and may be helpful for making financial decisions. 

  1. Payment History  -  This makes up 35% of the Total Credit Score. This item is by far the most important factor in the score. A way to improve a credit score is to make on-time regular payments.
  2. Debt Amounts  -  This makes up 30%. This item is the second largest factor in the credit score. Keeping overall debt low is key but maintaining a low credit card balance is also recommended.
  3. Length of Credit History  - 15%. Length of time of each account and last activity are important for this item. Long history credit presents financial behavior and it's recommended to keep longstanding accounts. If no credit history, its recommended to begin using credit.
  4. New Credit  - 10%. Recommended to avoid opening too many credit lines at once.
  5. Credit Mix  - 10%. Repaying a variety of debt represents good behavior and is recommended.

No late payments and maintaing low balances on credit card are very important for having good credit.



Source: - The FICO 5: The Components that Make Up a FICO Credit Score, by Jeremy M. Simon. View Article