What Is FICO – A Guide To Understanding Your Credit Score

Credit Scores are based on 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.

FICO Credit Score Calculation

In order for a FICO score to be calculated on your credit report, the report must contain at least on 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.


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 & Company. FICO scores are provided to lenders by the three major credit reporting agencies: Equifax, Experian and TransUnion.

FICO scores provide the best guide to future risk based solely on credit report data. The higher the score, the lower the risk. But no score says whether a specific individual will be a “good” or “bad” customer. And while many lenders use FICO scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable for a given product. There is no single “cutoff score” used by all lenders and there are many additional factors that lenders use to determine your actual interest rates.

Your FICO score changes over time. As your data changes at the credit reporting agency, so will any new score based on your credit report. So your FICO score from a month ago is probably not the same score a lender would get from the credit-reporting agency today.

What’s in Your FICO Score?

FICO scores are calculated from a lot of different credit data, segmented into five categories:

  1. Payment History (35%)
    • Payment history on specific account types: credit cards, installment loans, mortgage loans, etc.
    • Presence of adverse public records: Bankruptcy, judgments, liens, etc.
    • Severity of delinquency (how long has the account been past due)
    • Amount past due
    • Time since past due items occurred
    • Number of past due items on file
    • Number of accounts paid as agreed

  2. Amounts Owed (30%)
    • Amount owing on accounts
    • Amount owing on specific types of accounts
    • Lack of a specific type of balance
    • 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).

  3. Length of Credit History (15%)
    • Time since accounts opened
    • Time since accounts opened, by specific type of account
    • Time since account activity

  4. 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

  5. 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.)
    • Please note that a score takes into consideration all these categories of information, not just one or two, and
      the importance of any factor depends on the overall information in your credit report.
    • Your FICO score only looks at 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.

What’s Not in Your Score?

Your race, age, salary, occupation, title, color, religion, national origin, sex, where you live, interest rates being charged, certain types of inquiries, and marital status are not calculated in your FICO score.

How Scoring Helps You

  • You can get loans faster.
  • Credit decisions are fairer.
  • Credit “mistakes” count less.
  • You have more available credit.
  • Credit rates are lower overall.

How to improve your FICO score

  • Pay your bills on time. Delinquent payments and collections can have a major negative impact on your score.
  • Get current and stay current if you have missed payments.
  • Be aware that paying off a collection account will not remove it from your credit report. It will stay on your report for seven years.
  • If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor.
  • Keep balances low on credit cards and other “revolving credit”.
  • Pay off debt rather than moving it around.
  • Don’t close unused credit cards as a short-term strategy to raise your score.
  • Don’t open a number of new credit cards that you don’t need, just to increase your available credit.
  • If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly.
  • Re-establish your credit history if you have had problems.
  • It’s OK to request and check your own credit report.
  • Apply for and open new credit accounts only as needed.
  • Have credit cards — but manage them responsibly