How Bureaus Calculate Your FICO Scores
FICO® Scores calculations are based on the information found on several important sections of your credit report. The different items can be broken down into five categories as highlighted below. Calculation of FICO Scores depends on the various categories; the FICO Scores chart shows the impact in percentage of each category.
Your FICO Scores features both negative and positive information contained in your personal credit profile. Therefore, late payments lower your FICO Scores; a progress report that looks good can help you raise your score through timely payments.
Analysis of FICO Scores
These percentages show the connection between the five item categories and the consumer’s FICO Scores. The significance of these five categories varies relatively for specific consumers such as those that have a short credit history.
Significance of categories varies depending on consumer
FICO Scores generation is dependent on the categories below. The significance of the categories varying depending on the consumer; for instance consumers without an established credit will be allotted differently compared to those that have a comprehensive credit history.
Therefore, the significance of any of the categories in a consumer’s credit score calculation is dependent on general data found on the consumer’s credit report. A certain category may have greater significance for some consumers compared to others with completely dissimilar credit histories. Additionally, with every data update in a consumer’s credit report, the significance of the factors used in FICO ® Scores calculations is also updated. Therefore, it is not possible to accurately calculate the relevance of an individual item in relation to credit score calculation without examining the consumer’s entire credit report. Also, the percentage of significance illustrated in the FICO Score Chart apply to most consumers but not all as it will depend on the credit history of individual consumers.
Data on Credit Report determines your FICO Score
The calculation of your FICO score is determined by the report of your credit history. Nevertheless, lenders base credit decisions on many other things for example your income, period of current employment and the kind of credit requested by an individual.
History of Payments (35%)
First and importantly a lender checks to see if you have been consistent and prompt in making payments in the past since this is the major FICO Scores determining factor.
Amount of Credit Owed (30%)
Just because you have credit accounts or even owe balances on these accounts does not entirely imply that your FICO® Score is low or are a higher-risk borrower.
Credit History Duration (15%)
Generally, having a credit history of longer duration raises your FICO® Scores. Nevertheless, FICO Scores for a consumer with a short credit history and a good credit report can be relatively high.
Your FICO Scores depend on:
- The duration of time you established your credit accounts; for instance, how old your first accounts are, how old your very recent account is and the mean age of your accounts.
- How old some certain credit accounts or lines you own are.
- The duration of time that has elapsed since you used certain accounts or lines.
Credit Mix Used (10%)
Your FICO Scores also factor the different credit cards, installment loans, retail accounts, mortgage loans and consumer finance accounts that make up your credit report.
New Credit (10%)
According research, opening multiple credit accounts with a short duration of time creates a higher risk for a consumer; particularly if the consumer’s credit history is short.