How FICO Scores Are Calculated

Written By Mary Beth Eastman
Last updated August 5, 2019

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August 5, 2019

Simple. Thrifty. Living.

It’s no secret that FICO scores are important. Your FICO score can serve as the gateway to accessing personal loans, credit cards, mortgages to buy a house, or even to gain approval to a coveted apartment building. But just how are these scores calculated? Here’s what you should know:

Think of your FICO scores as your financial grade point average (GPA). Just as a missed deadline could negatively impact your GPA, a missed payment can lower your FICO score. But if you are consistent with paying your bills on time, you have a better chance of increasing your score. But payments aren’t the only factors that impact your FICO score. FICO scores are based on many factors, including your payment history, utilization, and credit mix. Each of these factors ranges in a percentage of what makes up your score.

Credit reporting agencies use your different parts of your credit report to calculate your credit score. The three national credit bureaus, Equifax, Experian, and TransUnion, assign different percentages to different factors to calculate your FICO score. The calculation is based on Fair Isaacs Corporation’s formula and includes various factors, such as your payment history or length of credit history.

For instance, if you recently applied for new credit within the last two years, you can expect it to impact your score by 10 percent. Your payment history, such as your pattern for paying bills on time, counts for 35 percent of your FICO score. The amount you owe accounts for another large portion of your FICO score at 30 percent. Other important factors include your credit history length (15 %) and the mix of credit (10%).

That’s why it’s important to know how credit decisions affect your credit score, such as whether you should cancel your cards when you pay them off, or if you should pay them off slowly or all at once.

FICO scores range from 300 to 850 points, and most companies consider FICO scores 740 and up as excellent scores and 700s good scores. But if you want to achieve a good FICO score, it’s worth implementing a few strategies.

Start by paying all your bills on time, since that takes up the largest part of your FICO score calculation. Try your bank’s autopay feature to help with this. Also, keeping your credit card utilization under control by using less than 30 percent of your total available credit. You also want to make sure you pay off your balance monthly so you can keep your debt down.

If you need professional help cleaning up your credit, there are some affordable credit repair options.

Your FICO score is like a report card of your financial health when it comes to how you manage loan payments. So, it’s worth understanding the basics and knowing the steps to achieve a good FICO score. Just use these tips and practice excellent money management skills, and you’ll be on your way to attaining a high FICO score.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

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