Sunday, February 26, 2006

What Is A FICO Score?

Lenders use your FICO score to determine your credit risk. The higher your score, the less of a risk you pose. To see the chart of FICO score see my post What's Your Score?.

So how is your score determined. The percentage that Fair Isaac uses is:
35% payment history
30% amounts owed
15% length of credit history
10% types of credit used
10% new credit

The percentages break down like this:

Payment History - 35%
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, judgments, 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 - 30%
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 - 15$
Time since accounts opened
Time since accounts opened, by specific type of account
Time since account activity

New Credit - 10%
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 - 10%
Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

Now that we know what your credit score is, in the next installment I will tell you what it is not.

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