Just how are FICO scores calculated? Well, generally speaking:

35% of the weight is from payment history. This quantifies the payments you have been obligated to pay and the track record of doing so.

30% is from amounts owed. This quantifies a precise number using your available balances and the amounts owed on each separate balance. A general rule of thumb is to never exceed 30% of your available balance. For instance, you have a credit card with $10,000 available balance. Do not exceed using more than $3,000 of that credit card or your FICO score will adjust downward.

15% is from length of credit history. The longer you have established credit and trade lines, the better it will be for your overall FICO health.

10% is from types of credit in use. It is wise to diversify credit, and have a mortgage, credit cards, auto loans, etc. Credit bureaus want to see proper fiscal management of all types of credit and debt.

10% of the weight is from new credit lines extended and the proper usage of these lines. A business owner is wise to have lines of credit. He is wiser to keep some of the untouched for those rainy days. Credit bureaus think the same way.

The importance of any single factor depends on the overall information in the credit report.  So different credit histories can change the importance of a given factor in determining your overall FICO score. Payment history includes mortgages, credit cards, retail accounts, installment loans, student loans, etc. It also includes any bankruptcies, foreclosures, lawsuits, wage attachments, liens, judgments, and late or missed payments (how late they were, how much was owed at the time, how recently they occurred and how many there were).

Obviously delinquent payments and collections have a major negative impact on the FICO score. Amounts owed looks at the total balance owed in the last month, the total amount owed on specific types of accounts, the number of small balance accounts with strong payment histories, total debt outstanding as a percentage of the original loan amounts, and how much of the total credit line available has been used up.

Supposedly, your FICO score does not include age, salary, occupation, title, employer, date of employment, geography, and/or any information not found in the credit report, and/or any information that has not been proven to be predictive of future credit performance. As you should know, a score of over 700 is excellent but anything less than 620 is considered risky.  Some individuals reach a FICO score of 800 or higher with age, time, and proper fiscal management of credit.

There is a lot more to credit and the composition of your FICO score. At Freedom Lending, our Trusted Advisors offer credit guidance and improvement strategies. Please call us today to learn more about how a credit score is derived and how it is affected.