What's in a Credit Score?

There is a lot of talk of having a good credit score, but few Americans know what makes up their credit score. There are obvious factors that affect your score such as making payments on time, but what factors are the most important? How does Fair Isaac Corp. (recently changed its name to FICO) determine what our credit score is?

Payment history (35%)

The highest percentage of your FICO score is your payment history. While it isn't the only contributing factor, it is the most important one. It's imperative that you make all of your payments on time. With the amount of technology available to us, it's easy and convenient to remember to pay your bills by their due dates. Put it in your cell phone calendar and set a reminder. Pay the bill as soon as it comes in the mail or hits your email. Use your bank's online bill pay option to schedule your bill payments. Since this is the biggest part of your credit score calculation, it's the one you need to pay the most attention to.

Balances (30%)


Second in line of importance is the amount you owe on your debt, or the balances. Manageable debt amounts help to keep your credit score high, while huge amounts of debt can cause your score to plummet. It comes down to being able to manage your debt.


Credit history (15%)

The longer your credit history, the better. People have a misconception that they should close out old accounts that they don't use or don't use very often. Closing these accounts may harm your credit score if it's accounts that have a history. This is why it's important to establish credit when you become an adult and learn how to manage it properly right away. Having credit accounts, loans, and other types of debt instruments your whole life pays off by bumping up your credit score. It goes without saying that you also have to have a good payment history, so it's not just about the longevity.

Types of credit (10%)

It's also important to have a variety of debt and credit. FICO scores increase when you have a smorgasbord that includes credit cards, students loans, personal loans, a mortgage, etc. Again, it's about being able to manage your credit--a variety of credit.

New credit (10%)

A long history of credit is important, but establishing and managing new credit also adds to your credit score calculation.

Now you know what goes into calculating your credit score. Managing all aspects of the calculation is important, but managing the areas with higher percentages is even more of a priority. You can learn more about these percentages and what goes into calculating your credit score at www.myfico.com.