CREDIT SCORES

Along with the credit report, lenders can also buy a credit score based on the information in the report. That score is calculated by a mathematical equation that evaluates many types of information that are on your credit report at that agency. By comparing this information to the patterns in hundreds of thousands of past credit reports, the score identifies your level of future credit risk.

In order for a FICO® score to be calculated on your credit report, the report must contain at least one account which has been open for six months or greater. In addition, the report must contain at least one account that has been updated in the past six months. This ensures that there is enough information - and enough recent information - in your report on which to base a score.

About FICO scores

Credit bureau scores are often called "FICO scores" because most credit bureau scores used in the US are produced from software developed by Fair Isaac and Company. FICO scores are provided to lenders by the three major credit reporting agencies: Equifax, Experian and TransUnion.

HOW CREDIT SCORES ARE CALCULATED

Credit scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining your score.

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.

Payment History
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Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
Presence of adverse public records (bankruptcy, judgements, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
Severity of delinquency (how long past due)
Amount past due on delinquent accounts or collection items
Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
Number of past due items on file
Number of accounts paid as agreed

Amounts Owed
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Amount owing on accounts
Amount owing on specific types of accounts
Lack of a specific type of balance, in some cases
Number of accounts with balances
Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

Length of Credit History
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Time since accounts opened
Time since accounts opened, by specific type of account
Time since account activity

New Credit
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Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
Number of recent credit inquiries
Time since recent account opening(s), by type of account
Time since credit inquiry(s)
Re-establishment of positive credit history following past payment problems

Types of Credit Used
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Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

Please note that:

A score takes into consideration all these categories of information, not just one or two.
No one piece of information or factor alone will determine your score.
The importance of any factor depends on the overall information in your credit report.
For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score. Thus, it's impossible to say exactly how important any single factor is in determining your score - even the levels of importance shown here are for the general population, and will be different for different credit profiles. What's important is the mix of information, which varies from person to person, and for any one person over time.
Your FICO score only looks at information in your credit report.
However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.
Your score considers both positive and negative information in your credit report.
Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your score.

TIPS

Don't Be Late

Missed payments are the single biggest killer of credit scores. Your past behavior, late or missed payments, foreclosures, bankruptcies, etc. counts for one-third of your credit score. Be sure you pay those bills on time.

If you already have a late payment on your report, you could try calling your lender and asking for a "goodwill adjustment." Also called an account "re-age," the adjustment reports your account as current, rather than late. The degree of success you'll have with this strategy depends on your track record with the company. If you're a one-time offender, it might work. Repeat offenders, however, shouldn't hold their breath.

Pay Down Balances

Paying down balances is a quick fix. One-third of your credit score is based on the amount you currently owe in relation to your credit limit. Try to keep your balances at 50% or less of your credit limit.

Keep Old Credit Lines Open

Another 15% of your score comes from how long you've been managing credit. Closing old accounts shortens your credit history and lowers your score. Lenders also take into account the average age of your accounts, so an older account can help balance newer credit.

Limit New Credit

Take on new credit only when you need it. New credit can hurt your score twice. For starters, new inquiries for credit count for 10% of your score — and a flurry of new credit requests can lower your score. Also, once a new credit line is secured, the average age of your accounts will shorten, which in turn can drag down your score even more.

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