Understanding FICO® Factors

by Brian Sacks, Mortgage Broker, Branch Manager, Trainer, Author

After computer-based scoring models are applied to data in the credit report, points are given for five different factors. These factors and their approximate percentages of the total score are as follows:

(1) Payment History, 35%.
(2) Amounts Owed 30%.
(3) Length of Credit History, 15%.
(4) Types of Credit Used, 10%.
(5) Number of New Credit Lines Opened, 10%.

1. Payment History (35% of Score)

Late payments do not in and of themselves ensure a bad credit score. A good overall credit history can outweigh a couple of late payment. On the other hand, a perfect payment record does not automatically mean a great score because payment history is only a part of the information used to calculate a credit score. Payment history information includes:

• Payment information on a variety of accounts, such as credit cards, department store cards, installment loans, finance company loans, and mortgages. Any such events are serious. However older items and items with small amounts count less than recent items or large amounts.
• Detailed information about late payments or missed payments, such as how late your payments were, how many payments you missed, and how recently these things occurred.
• How many accounts have no late payments. If you have paid virtually all accounts on time, it will raise your credit score.
• Whether you have a good recent credit history, following past payment problems. If you have re-established credit and are making payments on time, that will eventually help raise your credit score.

2. Amounts Owed (30% of Score)

Just owing money does not mean you are considered a high risk and get a low credit score. But if you owe a lot of money on many accounts, that can indicate you are financially over extended and are, therefore, more likely to miss some payments or make them late. Information about amounts owed include:

• The amount you owe on all of your accounts. Even if you pay the balance on your credit accounts in full every month, the credit report might show a balance on the cards because the amount that shows on a credit report is usually the balance on the last statement.
• The amount you owe on different types of accounts.
• Whether there is a balance on certain types of accounts. Having a small balance and no missed payment can help raise your score a bit.
• The number of accounts that have balances. If there are a large number, there might be a risk of your being over extended financially.
• How much of your total credit line is being used. If you are close to being “maxed out” on several credit cards, you might have trouble making payments on further debt.
• What percentage of the amount borrowed you still owe on installment loans.

3. Length of Credit History (15% of Score)

The longer a credit history you have, the higher your score. However, even if you have not been using credit for a long time, you can get a high score if the remainder of your credit report is good. Information regarding length of credit history includes:

• How long you have had credit, including both how long the longest-held account has been held and the average age of all your accounts.
• How long specific accounts have been held.
• How long it has been since you have used certain accounts.

4. Types of Credit Used (10% of Score)

A “healthy” mix of types of credit—credit cards, department store cards, installment loans, etc.—will result in a higher score. Information about types of credit includes:

• What kinds of credit accounts you have had.
• How many of each kind of account you have.

5. Number of New Credit Lines Opened (10% of Score)

These days people tend to have a lot of credit and to shop for better rates on cards. Because opening many credit accounts in a short period represents more risk, credit scoring looks at this factor. They do take into account the difference between a consumer searching for many new credit accounts and one merely searching for better rates. Information about new credit includes:

• How many new credit lines you have opened.
• How long it has been since you have opened a new account.
• How many recent request for credit you have made. Although inquiries stay on your credit report for two years, FICO® scoring only considers inquiries made during the past 12 months.
• How long it has been since lenders made inquiries.

Copyright Brian Sacks. All rights reserved. Brian Sacks is a nationally known speaker, author and educator with 20 years experience in the mortgage industry. He is recognized as THE expert in credit challenges, helping those with bankruptcy and poor credit get home loans. Yes, You Can Get A Mortgage is available in paperback or instant e-book download. Brian is a member of the National Advisory Councils for GoGetLoan.com, GoGetNotary.com, GoGetEscrow.com and GoGetRealEstate.com. For more about Brian, visit GoGetLoan.com/Get/BrianSacks.