What Goes Into Your Score
Key factors of your score
Just what goes into the score? Everything in your credit report, with different kinds of information carrying differing weights. The FICO-scoring model looks at more than 20 factors in five categories.
1. How you pay your bills (35 percent of the score)
The most important factor is how you've paid your bills in the past, placing the most emphasis on recent activity. Paying all your bills on time is good. Paying them late on a consistent basis is bad. Having accounts that were sent to collections is worse. Declaring bankruptcy is the worst. Creditors will note 30, 60, and 90 day delinquincies and this will stay on your record for a number of years, with the most attention being paid to the last 12 months.
2. Amount of money you owe and the amount of available credit (30 percent)
The second most important area is your outstanding debt — how much money you owe on credit cards, car loans, mortgages, home equity lines, etc. Also considered is the total amount of credit you have available. If you have 10 credit cards that each have $10,000 credit limits, that's $100,000 of available credit. Statistically, people who have a lot of credit available tend to use it, which makes them a less attractive credit risk. The rule of thumb is to keep your total outstanding debt under 20% (the lower the better) of your total available credit.
- People who never use their credit don't have a track history. This is not good for your credit score because it doesn't show that you can or can't be a reliable borrower.
- People with the highest scores use credit sparingly and keep their balances low.
3. Length of credit history (15 percent)
The longer you've had credit — particularly if it's with the same credit issuers — the more points you get. It shows stability.
4. Mix of credit (10 percent)
The best scores will have a mix of both revolving credit, such as credit cards, and installment credit, such as mortgages and car loans. Having a variety of credit shows that you know how to handle money.
5. New credit applications (10 percent)
The final category is your interest in new credit — how many credit applications you're filling out. The model compensates for people who are rate shopping for the best mortgage or car loan rates. The only time shopping really hurts your score is when you have previous recent credit stumbles, such as late payments or bills sent to collections. That's because it appears that looking for new credit will salvage you from declaring bankruptcy or previous accounts that you have defaulted on. If you have a very young credit file, an inquiry can count for more than if you've had credit for a long time.
