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How is my FICO score calculated?

Article brought to you by Ollo and authored by Shannon McLay, Personal Finance Expert and Published Author.

Credit scores can seem confusing, but there’s actually a formula for how they are calculated.

Five categories of information from your credit reports with the credit bureaus is used to calculate your FICO® Score. At a high level, here is how your FICO Score is calculated:

Payment history – 35%

Your payment history is the most important factor in determining your credit score and accounts for 35% of your score. After all, it illustrates your basic understanding of a credit relationship: someone lends you money and you pay it back. Since your FICO Score is an indication of your likelihood of repaying your debts, showing that you’ve paid your bills in the past gives lenders a good indication that you will pay them in the future.

Your payment history includes the following:

  • Information on your payments of all forms of credit you have outstanding

  • Your public record information, such as bankruptcies and collection items

  • Details on late or missed payments

  • The number of accounts that show consistent on-time payments or are currently listed as paid as agreed

The better your payment history, the higher your FICO Score will be.

Amounts owed – 30%

Your ability to repay your debts is certainly impacted by how much debt you have outstanding which is why this category has a large weighting in your FICO Score as well. This category not only includes the balances you owe on all of your outstanding forms of credit, but it also takes into account how much credit you are using vs. how much you have available, otherwise known as credit utilization.

Credit utilization is a big driver of your score in this category. The higher your credit utilization, the lower your FICO Score may be.

Length of credit history – 15%

FICO will analyze how long credit accounts have been established in your name. Your score may consider the age of your oldest account, the age of your newest account and the average age of all your accounts.

A short credit history does not necessarily mean that you will have a low FICO Score; however, a longer credit history does give lenders a better idea of how likely you are to pay your debts and it gives lenders a really good idea of the type of borrower you have been.

New credit activity – 10%

In this category, your FICO Score will reflect how many new accounts have been opened, the time between the openings, how many recent credit inquiries or requests you’ve had on your account, the length of time since the inquiries and whether there’s good recent credit history.

Research shows that opening several forms of credit within a short period of time represents a greater risk for repayment, especially if someone has a short credit history.

If you are shopping around for the best rates for large expenses a mortgage, car loan or student loan, FICO Scores ignore inquiries made within these categories for 30 days and then after 30 days, it lumps all inquiries of the same category (mortgage, car loan or student loan) into one. So the good news is that you can shop for the best rates without worrying about negatively impacting your credit score.

If you’re looking to make a large purchase, it’s a good practice to avoid any credit inquiries for a few months leading up to the big purchase because you want to have your best financial foot forward when you lock in the rate of a large purchase.

Credit mix – 10%

The final component of your FICO Score is the mix or types of credit that you have outstanding. Consumers who have multiple types of credit, including revolving credit like credit cards, and installment credit like car loans or mortgages, appear less risky to lenders. FICO Scores also consider how many types of each credit you have outstanding. If possible, it’s best to have a diverse mix of credit types to illustrate your mastery, in all forms of repayment.

This article is provided to you solely for education purposes. It is not intended to provide you with any specific legal, investment or financial advice and you should not solely rely upon this in making financial decisions.