What Makes a Credit Score

Fair, Isaac’s credit scoring formulas take into account and weigh various pieces of information from your credit report. The information and weights include:

• the type of accounts you have (mortgage, car loan, credit cards), 10 percent;
• the number of recently opened accounts and their proportion to your overall credit, 10 percent;
• your payment history, 35 percent;
• the amounts you owe, 30 percent; and
• the length of your credit history, 15 percent.

The emphasis placed on the various parts of your credit report can vary. Fair, Isaac & Co. notes:

These percentages are based on the importance of the five categories for the general population. For particular groups—for example, people who have not been using credit long—the importance of these categories may be somewhat different.

Other scoring models use essentially the same information, though the emphasis may vary.

When considering your payment history, the FICO scoring system looks at:

your account payment information on specific kinds of accounts (including mortgages, installment loans, credit cards, retail accounts, finance company records and so on);

• public records, especially a bankruptcy, liens, judgments against you, wage attachments and such;
• whether anything is past due, and how long it has been past due;
• how much is past due or has been turned over to collections;
• the number of past due items in your credit history;
• the length of time since a bankruptcy or a past due or any other negative item appeared on your history;
• the number of accounts that have been paid on time and as agreed.

The length of your credit history is important in determining if there is enough information on which to base a credit score.

The credit report being used to generate a score also has to have at least one account that has been updated within the previous six months, so that there is enough recent information on which to base a score.

You’ll also find that some lenders use their own scoring system. For instance, according to the Philadelphia Federal Reserve Bank’s newsletter:

Application scoring systems, which look at both credit bureau information and information submitted on an application, consider employment stability, debt-to-income ratios, assets (particularly cash) and loan-to-value ratios.

Next: Your Score and Credit