Credit Repair

How Your Credit Score Is Calculated?

Lenders, employers, landlords, merchants – there are many people who may like to look into your credit score in order to predict how likely you are to pay your bills in time. There are several factors that are taken into account in order to calculate this score, such as the different types of credit that you are using, the number of enquiries you have made for loans and debts within a specific period of time, the length of your credit history, the level of debt you owe, and your payment history. Considering the very fact that certain aspects of a bill-paying history are considered as more important than others, the different factors carry different weights when it comes to calculating the FICO score.

The Different Types of Credit Contribute to 10%

It is good to use different types of accounts because it shows how good you are with using different a mix of credit. However, this information makes only 10% of your credit score. Therefore, it is not wise at all to open different loan accounts just in an attempt to achieve a better mix of credit.

The Enquiries You Make for Loans and Debts Contribute to 10%

When you place an enquiry for loans or debts, it is reflected in your FICO report. If you have sent too many loan applications within a very short period of time, it will have a negative impact on your FICO score. Too many enquiries give the message that you are in some kind of financial trouble and that is the reason you are applying to so many lenders. Though the enquiries keep showing on your report for the next 24 months, only enquiries made within the last 12 months are considered to calculate your credit score.

Length of Credit History Contributes to 15%

The longer your credit history, the better it is for the health of your credit report. A longer history indicates that you have been very good in handling the debts that you owe to different creditors. That is the reason it is advisable to leave the different accounts open for as long as possible. For example, if you can keep your old credit cards open even if you have stopped using the same.

The Amount of Debts Contributes to 30%

The amount of debts that you owe to different creditors contributes to 30% of your credit score. There is a term credit utilization that reflects the level of debt you have acquired as compared to your credit limits. The higher the credit utilization, the lower the FICO score is. It is recommended to keep balances on different credit card accounts and other loan accounts at about thirty percent of your credit limit.

Payment History Contributes to 35%

Your payment history is the most important factor. After all, if there is anything that lenders are most concerned about is your ability to repay the bills. For this, they look at your past record – how good you have been in making your debt payments. If you have been current with your payments, it will help you achieve a better FICO score. A bad payment history on the other hand will have a negative impact on your credit report.

Overall, if you are looking out for ways on how to improve your credit, the awareness about the different factors that your credit score is made of will make things very easy for you.


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Posted in Credit Repair, Credit Score | 1 Comment »

One Response to “How Your Credit Score Is Calculated?”

  1. John says:

    Credit Score plays a very important role in today’s life. If you want a house on rent, Landlord will see your FICO. If you are searching a job, your employer will definitely have a look on your credit score. So, it’s necessary to know more about the calculation behind the figure called Credit Score. After reading this article, I was very surprised to know that even if we do a call for enquiry of a loan, it can affect our credit score I have decided that I will never ever make a call for the query on loans and debts. If we have different credit cards, it will also make our score better, though the percentage will be low. The most important factor is that if we keep balance on our credit cards, it will also affect our credit score. It means the credit utilization is not interesting. The punctuality of payment the bills is the key factor in your credit score. Highest percentage depends upon how regular you are on paying the bills. Every Landlord or employer will have the most interest in it. So, be punctual for the repayment and your credit score will mark the high level.

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