Anatomy of Your Credit Score

For a number that can affect so many parts of our lives, most people know very little about how a credit score is calculated.

More than 90% of businesses use the FICO system to make lending decisions. FICO (the company) does not actually calculate each credit score. They sell the software that calculates them to the “big three” credit reporting companies (Experian, TransUnion, and Equifax).

Each credit reporting company then tweaks the formulas according to their own rules, which is why your credit score may be a little different depending on which credit reporting company you ask.

We may not know the exact details of how a FICO credit score is calculated, but FICO does let us know what kind of information matters.

Believe it or not, your income does not come in to play at all. Getting a raise or reporting more income on your taxes will not improve your credit score.

What does matters is your debt, and how well you pay it.

Here’s a rundown of what FICO shares with the public about how their software is used to calculate a consumer credit score:

35% – Payment habits matter most.

Your Payment History makes up 35% of your credit score. How well you pay your debts is the most important factor for your FICO score. If you pay your credit accounts and loans on time each month, you’ll do very well in this area.

Having one late payment will not tank your credit score, though. The FICO formula considers how late the payment was, how many late payments you have on each account, and how long an account remains delinquent. This is also where bankruptcies, liens, garnishments, foreclosures, and collection reports can affect your score.

30% – How much do you owe?

The total amount of money you owe to your various creditors accounts for 30% of your credit score. A key calculation is your Credit Utilization Ratio, which measures how maxed out your lines of credit are. If you have borrowed nearly up to the limit on your credit cards and still owe 4 years on a 5-year car loan, you will score lower in this area than someone who has more available credit.

15% – How long have you maintained your credit accounts?

The length of your credit history contributes to about 15% of your FICO score. It takes about 6 months of payment history to establish a credit score. In general, the longer your history, the better. But, you can start out young with a good credit score from the beginning if you make smart credit choices from the get-go.

10% – What’s your credit mix?

About 10% of your score is based on the types of credit you have. This portion of your score looks at how your debt is spread over the types of credit available. It is best to have debt in good standing from multiple categories, including mortgage, credit cards, and installment debt (like car loans or student loans).

10% – What have you done for your credit score lately?

Any new credit lines you’ve opened make up the last 10% of your score. This last category is  especially important if you have a relatively short credit history. The idea is that if you’ve opened several accounts recently, you may quickly overextend yourself and be unable to make your payments. If you are careful, and don’t apply for too many lines of credit at once, you can score well in this area.

The moral of the story…

Payment History and the Amounts You Owe make up 65% of your credit score.

That’s where we come in. The way the proprietary NCES formula reverses negative accounts to show “paid as agreed” is one of the key benefits of our service.

Most other companies just have the records deleted, erasing years of valuable credit history. We preserve that history with the reversal – raising scores and improving creditworthiness.


If you have any questions, please give us a call at 770-952-5168 or contact us online.

“Like” us on Facebook to have great tips and breaking credit news delivered right to your phone or computer.

Other articles that may interest you:
Why NCES Does 3 Rounds of Credit Restoration
5 Facts Debt Collectors Do Not Want You To Know
7 Ways to Improve Your Credit

This information is intended for informational and educational purposes only and not as legal advice. If you have concerns about your credit report, harassment, identity theft, illegal collections activity, garnishments, or property liens, you should consult an attorney who specializes in consumer rights and defense.

Related Posts

Comments are closed.