What factors determine my FICO score?

Summary: There are several different types of credit scores, with FICO scores most widely used. FICO scores are made up of five major factors: Payment history, amount of debt, length of credit history, new credit applications, and credit variation.

First, it’s important to understand that there are a variety of different ways of scoring credit. However, the most commonly used types of credit score is your FICO score, which is produced by the Fair Isaac Company, based in San Jose, California.

Under the most recent version of FICO, there are five broad factors, which determine your credit score. Because FICO’s scoring formula is confidential, no one knows exactly how your score is calculated, but understanding what goes into deciding your credit score, will be very helpful.


The largest consideration in deciding one’s FICO score, is payment history (it comprises 35% of every score). Here, FICO looks at each of your revolving accounts (i.e. credit cards, commonly issued by Visa, MasterCard, American Express and Discover) It also considers any mortgage, auto, student or other personal loan accounts you might have (these are known as installment loans). The payment history for revolving accounts, plays a greater role than installment accounts, in deciding your credit score.

For each account, FICO will look at your payment history; that is, were monthly payments made on time, or were they late? If a payment is late, FICO takes into account how late this payment were; those which were 90 or 120 days late, have a greater negative impact, than accounts which were only 30 days late. Additionally, late payments which occured more recently (particularly within the past two years) have a larger impact on your credit score, than those which occured 5 or 6 years ago.

Remember that any payment history (positive or negative) remains on your credit reports for 7 years. So, if you’ve had an account open for 10 years, credit reports will show the past 7 years worth of payments; if the account has only been open for 3 years, it will offer just 3 years of payment history.

FICO scores traditionally haven’t considered non-credit account payments, such as your cell phone, rent, or utilities bills, as a part of your credit score. The recently released FICO XD score, designed to empower those without traditional credit history, does take these items into account (FICO XD is in very limited use by most lenders, however).


After payment history, the second most important factor in a credit score, is the amount of debt one carries (this makes up 30% of your FICO score). This takes account of your overall debt load, across all open credit accounts, as well as how much is owed on each individual account. It also considers what, if any, balances you have outstanding on each account (many accounts with high balances will pull down your score).

For revolving accounts (credit cards), your FICO score is determined in part by your utilization ratio; that is, the ratio of your balance, to the overall account limit. So, if you have a $5000 limit, and a $500 balance, your utilization ratio is 10%. Generally, you’ll want to maintain a utilization ratio of 30% or lower, across all revolving accounts. For installment accounts (such as student loans, auto loans, and mortgage loans), FICO looks at how much of the original loan you’ve paid down, and how much remains outstanding.

In a nutshell, debt certainly isn’t a bad thing (after all, effective management of debt is what allows you to build a strong FICO score). Yet, high utilization and outstanding amounts owed, across lots of accounts, will bring your score down. In particular, maintaining reasonable (below 30%) utilization ratios on revolving accounts is very important. For installment accounts, if you pay the amounts required, each and every month, you’ll be fine.


The third significant variable in your FICO score is length of credit, that is, how long have your credit accounts been around for (this makes up 15% of your FICO score). FICO looks at the age of your oldest account, as well as your average account, and the ages of particular types of accounts (i.e. a mortgage loan, or a credit card).

Several important things to keep in mind here: First, the only way to improve this part of your credit score, is with the passage of time, and building a history of varied, positive accounts. Borrowers with perfect (850) FICO scores are almost always over the age of 50, and have had time to build a long, varied credit history.

Also, let’s talk about closed accounts. If you closed an account in good standing (meaning, with no money owed), it will appear on your credit report for 10 years after the date of closure, or last account update. As long as the account remain on your credit report, it’ll count towards your length of credit (which is a good thing). Therefore, if you have a credit card account, in good standing, with a low balance and minimal interest rate, you might want to keep it open for as long as possible, in order to increase your length of credit, raising your credit score.


The fourth part of your FICO score (10% of total score)  is any applications you have filed, for new credit. Here, FICO looks at the number of new accounts you’ve opened, and what types of accounts they are. FICO also considers how many requests for new credit you have filed in the past year. Basically, each time that you apply for a new credit card, apartment rental, or auto, mortgage or student loan, the lender runs a credit check (known as a hard inquiry), which affects your (usually by a few points).

So, if you apply for 5 credit cards in a week, that’s probably going to pull down your score. It is worth remembering, however, that if you are shopping for a major loan (let’s say, a mortgage or car loan), FICO understands that you’ll probably apply with several lenders in a short time, and it won’t penalize you. Basically, if you have several credit inquiries, for an auto or student loan, in a 45 day period, don’t worry, it’s fine.


The last factor (10% of your score) is your credit mix. What’s that? Basically, FICO looks at the different types of accounts you have, that is, things like credit cards, retail accounts, auto loans, mortgages, and so on. If you have a good variety of accounts (not just credit cards, for example), this part of your FICO score will be better. Credit mix is especially important for people who are new to credit, and don’t have many accounts just yet.

So, there’s your FICO score. The great news is that by keeping your debts low, making payments on time, and having a good range of credit accounts, it is possible to build a good score in a relatively short time, and an incredible score over the years.