Five Factors that Determine Credit Record

A credit score basically condenses your credit history into a single number, and while the credit bureaus don’t reveal how these scores are computed, the scores themselves are calculated by using scoring models and mathematical tables that assign points for different pieces of information that best predict future credit performance.
Credit scores analyze various aspects of borrowers’ credit history, including:
❑ Late payments
❑ The amount of time credit has been established
❑ The amount of credit used versus the amount of credit available
❑ Length of time at present residence
❑ Employment history
❑ Negative credit information (bankruptcies, credit card charge-offs,
accounts that are in collections)
According to Fair Isaac & Co., the five factors that determine your credit score are:

1. Payment History (approximately 35 percent of your score): The factor that has the biggest impact on your score is whether you have paid past credit accounts on time. However, an overall good credit picture can outweigh a few late payments, and late payments will continue to have less impact over time.
2. Amounts Owed (approximately 30 percent): Having credit accounts and owing money doesn’t mean you are a high-risk borrower. But owing a lot of money on numerous accounts can suggest that you are overextended and more likely to make some payments late or not at all. Part of the science of scoring is determining how much debt is too much for a given credit profile.
3. Length of Credit History (approximately 15 percent): In general, a longer credit history will improve your FICO score. Lenders want to see that you can responsibly manage your available credit over time. However, even people who have not been using credit very long may get high scores, depending on how the rest of their credit report looks.
4. New Credit (approximately 10 percent): People today tend to have more credit and shop for credit more frequently. But opening several credit accounts in a short period of time can represent greater risk—especially for people with short credit histories. Requests for new credit can also represent greater risk. However, FICO scores are able to distinguish between a search for many new credit accounts and rate shopping. FICO scores generally do not associate shopping for the best rate on a loan with higher risk.
5. Types of Credit in Use (approximately 10 percent): Your FICO score will reflect your mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. While a healthy mix will improve your score, it is not necessary to have one of each, and it is not a good idea to open credit accounts you don’t intend to use. The credit mix usually won’t be a key factor in determining your score—but it will be more important if your credit report doesn’t have much other information on which to base a score.