Your Credit Score
As
anyone who has bought a car or house, or who has applied for credit knows,
credit scores are an important determinant of your ability to receive credit
and how much interest you will have to pay for that credit. The most commonly
used is the FICO score, which has been developed by Fair Isaac Corporation.
The higher your credit score, the better your credit history, with anything below a 600 being considered a “poor” score. Several factors contribute to your credit score, with the timeliness of payment being the most significant. The score is also calculated based on the percent of overall credit being used is also an important factor, the length of your credit history, any new credit that has been activated and types of credit being used. Fair Isaac has outlined the following subcomponents of the factors that determine your credit score:
Payment History
- Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
- Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
- Severity of delinquency (how long past due)
- Amount past due on delinquent accounts or collection items
- Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
- Number of past due items on file
- Number of accounts paid as agreed
Amounts Owed
- Amount owing on accounts
- Amount owing on specific types of accounts
- Lack of a specific type of balance, in some cases
- Number of accounts with balances
- Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
- Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)
Length of Credit History
- Time since accounts opened
- Time since accounts opened, by specific type of account
- Time since account activity
New Credit
- Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
- Number of recent credit inquiries
- Time since recent account opening(s), by type of account
- Time since credit inquiry(s)
- Re-establishment of positive credit history following past payment problems
Types of Credit Used
- Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)
It’s important to remember that the FICO score is based on all of these categories of information, not just one piece of information. How any one piece of information is weighted in your credit score depends on any number of variables. Also keep in mind that your FICO is one piece of information – among many – that lenders consider.