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FICO Score Calculation.
Question: How do i figure my fico score?
Answer: The details of credit scoring models used by the major credit bureaus are closely guarded trade secrets, owned by the companies that have developed the scoring models. The best known and most widely used scoring model, the FICO score , which judges your credit on a scale from 300 to 850, was developed by the Fair Isaac Company, andis used with slight variations by the three major credit bureaus: TransUnion, Experian, and Equifax. Because the complexity of the statistical analysis used in credit scoring, and the fact that the scoring algorithms are not publicly available, you cannot precisely figure your own credit score. However, Fair Isaac has made public the general criteria it uses in calculating credit score. So based on information in your credit report, you should be able to tell which items in your report are helping or hurting your credit score.
There are five key factors that go into calculating your credit score, with certain items carrying more weight than others. These factors are as follows:
1) Payment history, which counts for approximately 35% of your score, is the most heavily weighted factor used in calculating your credit score. Consistently paying your bills on time has a positive influence on your score, while late or missed payments will hurt you in this area. If you have delinquent payments, the older the delinquency the less the negative impact on your score will be. Collection accounts and bankruptcy filings are also taken into consideration when analyzing your payment history.
2) Total debt and total available credit, which counts for about 30%. This section looks at how much debt you have compared to the total available credit on your accounts. If all of your accounts are maxed out, you will be considered a poor credit risk, because it appears that you are struggling to pay off the debt you have already incurred. If your account balances are relatively low compared to your available credit, this part of the risk analysis should help your overall credit score. The score calculation
also looks at these two factors independently. Having too much available credit, whether you have used it or not, could hurt your credit score, as statistical studies have shown that people with excessive amounts of available credit are a higher credit risk. Unfortunately, the bureaus do not define exactly what they consider excessive, so best tip is to use credit conservatively and to keep your debt to credit limit ratio low.
3) Length of positive credit history, which counts for about 15%. The longer you maintain accounts in good standing, the better your score will be. This shows that you are able to make a long-term commitment to a creditor and are consistently responsible about making your payments.
4) Mix of types of credit, which counts for approximately 10%. Having several different types of credit, such a credit cards, consumer loans, and secured debt, will have a positive influence on your credit score. Having too much of one type of credit can have a negative impact.
5) The number of new credit applications you have recently completed, which accounts for about 10% of your score. Applying for too much new credit in a short time period makes indicates that you could be credit risk, as you may be desperately trying to keep your head above water. The models make an exception for people who are shopping around for a loan, so if you are simply applying to see who can give you the best rate on a new loan, you need not worry too much about damaging your credit score.
While you cannot realistically calculate your own credit score, you can review your credit report for on the five factors I named above to get an idea of whether the accounts listed on your credit report
are hurting or helping your credit score. You can then take action to improve any potential problems, such as paying down your balances or paying off collection items.
I would say, most importantly, if you are carrying over $5,000 in credit card debt or are struggling with credit card or revolving debts, you should solve this problem first. If you want to apply for help with one of Bill's approved debt help partners, click here:
https://www.bills.com/debthelp/debt/
Also, factors such as age, sex, income, and length of employment, have no direct affect on your credit score, and are not considered when the bureaus calculate your score. Keep in mind that for most lenders, your credit score is only one aspect, albeit an important one, of your overall “credit worthiness,” meaning the creditor’s view of your ability to repay a loan. Your income, for example, is not considered in the calculation of your FICO score, but most lenders will ask you what you earn to analyze your ability to repay the loan. Even if you have an 800 FICO score, if your income is only $10,000/year, a lender will probably not loan you a large sum of money, because despite your past credit habits as measured by your FICO score, the lender can see that you probably cannot afford to repay the loan.
If you would like to learn more about credit reports, credit scoring, and what it means to you, I encourage you to explore the wealth of material offered by Bills.com at http://www.bills.com/credit/
I hope this information helps you Find. Learn. Save.
Bill
www.bills.com
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1. Posted by Carol Blakey on Friday 21st September 2007 08:33
I have a Beacon score of 737. I noticed that I have lots of credit cards that I don't ever use. Would it increase my score if I cancelled them?
2. Posted by Nithin on Monday 24th September 2007 13:27
Cancelling your cards is not really going to push your score up. You need to look at the age of all the different accounts you have. Older accounts actually help your score so it is actually not a good idea to close really old accouts because they help establish the age of your credit history. You may want to cancel the accounts that you have opened recently. Keep in mind that the number of active credit card accounts that show on your profile, although does have an impact on your score, it only contributes about 10% of the weight. If you need more information on how to improve your credit, please visit http://www.bills.com/credit/. You can also search the blog section for similar questions.
3. Posted by Kathy on Friday 7th December 2007 19:24
I used to have good FICO around 780 or more, but lately AMX put a negative event in my credit report that I refused to pay them a few of hundred dollar which I didn't use and never received any formal bill statements. How much it will impact my FICO?
4. Posted by brookes on Saturday 8th December 2007 07:37
it depends. while payment history is the largest component of your credit score (and now you have a derogatory / late payment listed) -- but it is not that delinquent (assuming you pay it off). You can contest inaccurate credit report listings, or you can call Amex and have them remove it.
5. Posted by Steven on Sunday 9th December 2007 03:58
Thank you very much for the great article. I have two questions: 1)I worked very hard and paid off all of debt. I currently have $16,000 in available credit and $0 in debt. I'm concerned that having too much available credit is keeping my score down. Should I start using one of my cards reguarly to show activity; and if yes, how much should I revolve or keep as a balance in order for it to count? 2)Focusing on the "length of positive credit history", I have several old closed accounts in good standing. Will these contribute to the lentgh, or do the accounts need to be currently open in order to count?
6. Posted by Nithin on Monday 10th December 2007 08:16
Thank you for visiting Bills.com and congratulations on becoming debt free. Those are very good questions. Here are your answers: 1) Credit reports do take into considerations, the credit utilizaton ratio, which is simply the amount of your total available credit that you have used; individually on every account as well as your total overall. The general rule of thumb is about 30% although lesser is better. That means, if you have a credit limit of $1000 you should use no more than $300. Use more than one single account and make sure that you pay your balances in full every month, if not then you will invariable get back in the cycle of debt again. 2) Closed accounts do not count for the age of your credit history, an account needs to be open for it to count for the total length of the credit history. For more information on credit scores, I encourage you to read more at our credit section available at: http://www.bills.com/credit/
7. Posted by ani on Friday 22nd February 2008 20:49
I want to consolidate my debts, will it hurt my fico score?
8. Posted by braydeng on Saturday 23rd February 2008 16:47
Yes. Almost any form of debt consolidation or debt help will likely hurt your credit. Credit Counseling or a Debt Management Plan gets listed on your credit report and most lenders look at it like a Chapter 13 Bankruptcy. Debt Settlement forces you to be delinquent for years, which hurts your score. If you can get a refinance debt consolidation loan, that might benefit your credit score... but in these markets it is difficult to qualify for a debt consolidation loan. Hope that helps you.
9. Posted by Barry Burgess on Saturday 5th April 2008 18:17
I currently have 20K cash and will soon receive 60k from a stock sale. My debt/avail credit on credit cards are as follows: 0k/20k, 0k/5k, 0k/3k, 4.4k/16k, 5.4k/13.5k, 3.8k/8k(new). I also have an installment loan with a balance of 8k on original 12k. What would you recommend I do? Should I pay off the installment loan or is that a positive thing for my FICO?
10. Posted by Bill on Monday 7th April 2008 10:20
Please pay off the credit cards before you pay off the installment loan. Once you pay the cards off, wait till all the balances are reported to the bureaus and then check your score. Remember that you have to have some sort of an ongoing payment history to increase your score. The installment loan actually helps your score.
11. Posted by Barry on Monday 7th April 2008 18:00
Okay. How long until balances are reported and should I close out any of the cards or will that have a negative effect on my FICO?
12. Posted by Bill on Monday 7th April 2008 18:39
It could take up to 60 days for your accounts to be updated by the credit bureaus. Closing out your accounts does not help your score as they are used to establish the age of your account, therefore it is not advisable to close accounts that you have had for a long time. But the negative affect is not that great, and if closing your accounts is the only way you can discipline yourself in not using them then you can go ahead and close out these accounts. For more information, please visit our credit resources page available at http://www.bills.com/credit-score/.
13. Posted by David on Wednesday 16th April 2008 22:44
I have a couple unpaid medical bills and misc collections on my credit report from over 4-5 years ago. I have had perfect credit history since those were deliquent. Do you think it would be better to take a personal loan (installment)and pay it all off or just pick away one by one till they are paid? What is the best way to achieve a higher score in the shortest amount of time?
14. Posted by Bill on Thursday 17th April 2008 08:43
Clearing all of the collection accounts will go a long way in helping your credit score to recover. You will need to apply in a few places to make sure that the interest rates that you are approved for, on the loan that you are looking for, does not turn out prohibitively high. If getting a loan is not an option, then definitely pay off whatever you are able to, in the shortest amount of time. These collections accounts really wiegh down your score and once paid, will really boost your score.
15. Posted by SCBell on Thursday 12th June 2008 11:44
I just sold our house and was wondering if the sale and paying off the mortgage will effect my FICO score. If so, would it make my score go up or down and how much of an effect will it make.
16. Posted by Bill on Thursday 12th June 2008 17:38
Well it will not effect your score negatively. If anything, it will only help establish the fact that you are responsible with your debts. Remember that Mortgage is a good form of debt.
17. Posted by Shaun on Monday 29th September 2008 07:31
I want to help my FICO score. I have three large credit card balances. I want to pay them down as they are up to their limit...do I pay one completely off? or each of them some...basically if I have 3000 to pay, should I pay it all on one or spread it out? They are all at zero percent. Thanks.
18. Posted by Bill on Monday 29th September 2008 09:04
If they are all 0% accounts, then spread the payments evenly. Either way, it is always best to carry balances less than 30% of the credit limit. The credit bureaus not only look at individual account utilization, but they also look at your overall aggregate credit utilization. Pay these cards down as soon as you can.
19. Posted by Ron on Wednesday 22nd October 2008 17:28
My wife and I have good scores (upper 700's/low 800's). We have a credit card which had a $25,000 limit. I requested and received an increase to $35,000. Does that request "ding" our scores, and for how long?
20. Posted by Credit Guru on Thursday 23rd October 2008 06:07
Ironically, this might actually help your credit score! Your credit utilization (the percentage of your credit lines that you have used up) will go down, making your FICO score go up. This will not count as an inquiry or a request for a new credit line, so you should be good.
21. Posted by Brown on Wednesday 21st January 2009 10:10
Do Debit Cards help your credit score? If not, would it be better to pay for items w/ a regular credit card and then pay off when statement comes in? Then, does paying off a credit card every statement help your score?
22. Posted by Bill on Wednesday 21st January 2009 11:24
You are correct, if you are looking to build your score then establishing a good payment history on a credit card is a good way of doing it. Be careful with your spending and always pay the bill in full.
23. Posted by Rossa on Saturday 28th March 2009 09:59
I have 2 previous collection which has been paid off and 1 late payment. I have paid the 3 items off. I am looking into buying a house this year 2009 and my Experian score is 659, Equifax 618 and transunion is 636. My husband score is good which is experian 708, equifax is 689 and Transunion is 696. Will I qualify for a home loan or my husband. We have installment loan debt which is 14,000. Do I need to pay this off in order to get my scores up. Please advise.
24. Posted by Bill on Monday 30th March 2009 09:04
I just cannot say whether you will qualify or not based on the information provided. Every mortgage lender will have their own criteria for qualification. The only way you will know is if you apply with multiple lenders. Once you speak to different lenders, you will know exactly what factors are helping you and which ones are not. Bills.com is an excellent place to start, just complete your request here: https://www.bills.com/homeloan/purchase/?credit_rating=Good&loan_type=home_purch&property_state=
25. Posted by Stephanie on Thursday 30th April 2009 10:17
I have a credit card that is maxed out. It has been that way for 9 months. If I pay it down to 30% would that dramatically increase my score.
26. Posted by Bill on Thursday 30th April 2009 16:41
It will increase your score for sure, but not dramatically. The amount of available credit that you use is only one of many factors used to calculate your score.
27. Posted by JT on Sunday 3rd May 2009 05:49
i have 4 revolving open lines of credit that has been open for almost 2 years and 1 paid/collection that was paid off 5 months ago. I had another colleciton show up 1 month ago that had $0 balence. The new Paid colleciton will account will be deleted so how much will by fico score go up once the new collection account is deleted? My scores are low to mid 600's and i dont use more than 30% of available credit.
28. Posted by Bill on Monday 4th May 2009 08:21
Once you pay off a collection account, your credit report will still show the account, but the balance will show as zero, just as you are seeing it now, but the account will not be deleted for up to 7 years. As you have no balance due, you should see your score improve within a few months. You need to make sure that you do not have any other accounts that are in collections and keep up your payment history current. As time passes, the negative effect of these collection accounts should go down.