Five Factors That Determine Your Credit Score

Discover How Your Credit Score is Determined

Discover How Your Credit Score is Determined

Credit Scores, commonly known as FICO score, have standardized the way lenders view credit.  But how is this score determined?

In 1956, the framework of the Fair Isaac Corporation, known today around the world as “FICO,” was hammered out by Bill Fair and Earl Issac. Together, they dedicated years to create a variety of credit scoring systems and ancillary products that are now internationally recognized as THE standard credit scoring system. This is important because if you are looking into a loan, in all likelihood the lender you use will look at your FICO score. 

Your FICO score is based on five key pieces of the credit score pie: 

  • Payment History 35%
  • Amounts Owed 30%
  • Length of Credit History 15% 
  • New Credit 10%
  • Types of Credit Used 10%
  1. Payment History
    Payment History is the single largest factor in determining your overall credit score. Therefore, making sure you pay your bills on time and have no late payments or collections against you, should equal a higher credit score. 

    In short, if you make all of your credit card, mortgage, car payments, etc. on time, you should benefit from a higher credit score. Trouble starts when you fail to make at least the minimum payments on your credit cards, you’re late in doing so, or you suffer a bankruptcy, foreclosure, or tax issues. These setbacks will result in a lower credit score. The good news, however, is that the older the negative transactions, the less relevant to lenders they become. 
  2. Amounts Owed
    A close second in factoring your FICO score is Amounts Owed, which comes down to your ability to manage all the credit at your disposal. How much money you owe collectively on all accounts associated with you, and in what form—mortgage, car loan, credit cards, etc.—will be scrutinized. Owing money on multiple accounts can put you in an unfavorable light. Similarly, if you max out all the credit available to you, you may also appear overextended. On the flipside, if you utilize a smaller credit line, lenders view this as being responsible. In addition, paying down principal owed on a mortgage or car loan is also considered a positive and should result in a higher credit score. 
  3. Length of Credit History
    Less significant, but still important, is Length of Credit History. Simply put, the longer you have good credit, the more financially stable you appear. 
  4. New Credit
    New Credit—the opening of new credit lines—or even just applying for new credit lines, is viewed negatively, especially if over a short period of time.   
  5. Types of Credit Used 
    Types of Credit Used is the last piece of the FICO score puzzle. The number of accounts in your name, combined with the types of credit—mortgage, car loan, etc.—are reviewed and weighed. 

  6. Receive a Free Credit Report from Partner Colorado 
    Once you understand what goes into creating your FICO score, it’s easier to establish, and keep, good credit. Prompt payments and a consistent track record will go a long way to your financial health. And if you download the Partner Colorado Credit Union mobile banking app on your mobile device, we’ll provide you with your FICO score for free! With Partner Colorado, you’ll always know where you stand, even when you’re on the go.