Understanding how your FICO Score is calculated
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Your FICO Score is determined based on data from your credit reports. FICO relies on data collected, organized, and maintained by the three chief credit bureaus in the U.S., TransUnion, Experian, and Equifax. These credit bureaus not only record your personal information, like your name, Social Security number, address, etc. but update your credit file with your accounts, balances, payment record, and also negative information like delinquencies and public records.

FICO uses the data from these three bureaus to calculate your credit score, although there are several variations of FICO Scores and the information provided by each credit bureau may differ slightly.

While we don’t know the exact complex algorithm that FICO uses to calculate your score, they do share a basic version that breaks down five major factors that influence your FICO score. This information is so important since a good FICO score will help you save money, access lower interest rates, and generally give you better financial options when it comes to debt and lending.

No matter how different our financial situation may be, our FICO scores are all tabulated exactly the same, based on five broad categories of consumer credit behavior.

5 Factors that go into your FICO score:

1)  Payment history

2)  Amounts owed

3)  Length of credit history

4)  New credit

5)  Credit mix

FICO also lets us know roughly how much each of these categories factors into scoring, as they are not weighted equally.

For instance, Payment history is the most important factor for FICO scoring, which makes up about 35% of your individual score.

35% Payment history

30% Amounts owed


15% Length of credit history

10% New credit

10% Credit mix

Of course, all of these factors interplay and go up and down all the time as consumers do things like make their mortgage payment on time, max out their credit cards, have an account go to collections, or take out new loans.

Remember, too, that this is an oversimplification, and everyone’s credit picture is dynamic and treated differently. For instance, someone with a great FICO score (like a 750) may see their score take a bigger hit if they miss one payment than someone with a below-average score, like a 620, if they do the same. FICO’s algorithm accounts for all of this as their intent is to gauge the future risk of defaulting for creditors and lenders.

FICO gives huge credence to your payment history, as your track record with paying on time is (of course) the biggest predictor of future payment behavior. Therefore, payment history typically makes up more than one- third of your score, and making payments on time (and in-full) is crucial for keeping a great FICO.

Another important factor for tabulating your credit score is the amounts you owe. It’s not necessarily the total amount of debt you owe that may improve or lower your score, but the proportion of your debt balances compared to the total available credit for that account (utilization). When banks and lenders see that you are maxed out and have used up most or all of your available credit, it signals to them that you are having financial problems or not a good steward of your finances, so keep your balances low and don’t max out credit cards.

FICO looks for well-established accounts that have been open for a while, rewarding a seasoned track record with a higher credit score. Of course, it’s possible for people with newer credit accounts to have a top-notch FICO score or consumers with long-time accounts to have a low score (especially if they’ve missed payments). But, in general, FICO likes to see older accounts, more time since you opened your newest account, and active use of accounts.

FICO scoring algorithms reward a well-balanced mix of accounts on a consumer’s profile, such as a blend of credit cards, installment loans, mortgages, and more. In fact, your credit mix can account for about 10% of your credit score.

Your use of new credit factors into your FICO score, although only about 10%. For instance, if you suddenly start applying for multiple new credit cards and loans, it may be viewed as risky financial behavior, and therefore your score may fall.

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To read the rest of our recent Amazon.com best-selling guide, An Inside Look at FICO Scores, for FREE, click here.