Your FICO Score

Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. Although the exact formulas for calculating credit scores are secret, FICO has disclosed the following components:

• 35% — Payment history – Late payments on bills, such as a mortgage, credit card or automobile loan, can cause a FICO score to drop. Paying bills on time will improve your FICO score.
• 30% — Credit utilization – The ratio of current revolving debt (such as credit card balances) to the total available revolving credit or credit limit. You can improve your FICO scores by paying off debt and lowering the credit utilization ratio. Alternatively, applying for and receiving the credit limit increase will also drive down the utilization ratio. The closing of existing revolving accounts will typically adversely affect this ratio and therefore have a negative impact on their FICO score.
• 15% — Length of credit history – As your credit history ages it can have a positive impact on their FICO score.
• 10% — Types of credit used (installment, revolving, consumer finance, mortgage) – You can benefit by having a history of managing different types of credit.
• 10% — Recent search for credit – Credit inquiries, which occur when you are seeking new credit, can hurt your score. Individuals shopping for a mortgage or auto loan over a short period will likely not experience a decrease in their scores as a result of these types of inquiries, however. While all credit inquiries are recorded and displayed on your credit report for a period of time, credit inquiries that were made by yourself (to check your credit), by your employer (for employee verification) or by companies initiating pre-screened offers of credit or insurance do not have any impact on your credit score.

There are other special factors which can weigh on the FICO score.

• Any money owed because of a court judgment, tax lien, etc. carry an additional negative penalty, especially when recent.
• Having one or more newly opened consumer finance credit accounts may also be a negative.