Credit Report Scores – How Are They Calculated?

Credit report scores are made up of a number of factors and though the exact formula used is not public knowledge, FICO themselves have given the public a basic idea of how they determine them. This article discusses the 5 different factors that make up your credit score.

1. Payment History – 35%

When you pay your bills accounts for 35% of credit report scores. If you’re late paying your credit cards, personal loans, mortgage loans or even store credit cards, this affects your score more than any other factor.

2. The Amount of Money You Owe Creditors – 30%

Following a close second to your payment history is how much debt you owe. This is further broken down to reflect the outstanding amount you still owe in comparison to what you were originally lent in the case of personal loans or mortgages. For example if you borrowed $10,000 originally but have paid back $5,000, this is what the credit bureaus take into account when determining credit report scores.

The same goes for any credit cards you have. If you have a credit card with a $5,000 limit and you only use 50% of that limit that will be looked upon more favourably than if you have used up and owe the entire credit limit.

3. Length of Your Credit History – 15%

How long you have had a mortgage, personal loan or any other type of loan or credit card is another factor credit bureaus take into account. Even though it’s a smaller percentage, loans or credit cards that have been open for a number of years will help to increase your credit report score.

4. New Credit – 10%

This refers to any recent inquiries you’ve made for loans or credit cards in addition to any credit or loans you have been approved for recently.

5. Types of Credit – 10%

The various types of credit you use – credit cards, mortgage, personal loans, even store cards have a bearing on credit report scores. It’s better to have a good balance of different types of credit – not just all credit cards or store cards but a mix of both revolving accounts (credit cards, store cards) and instalment accounts (housing loans, car loans).

As you can see, many components make up and affect credit report scores. Now you know which factors influence them and the weight each is given you’ll be better able to understand the credit score rating system.