Your FICO score is calculated through a combination of 5 factors: payment history, amounts owed, length of credit history, new credit requested, and type of credit. Exactly how much weight is assigned to each category is a mystery and the importance of each category may vary depending on the individual. What we do know are the weights for the general population (not you specifically) so let’s take a look at these categories and what they mean:

Payment History: 35%

The most important factor for how your FICO score is calculated is payment history. Lenders basically want to know whether or not you pay your bills on time. Payment history doesn’t just mean credit cards – loans like retail store credit cards, mortgages, and car payments are all part of your payment history.

Amounts Owed: 30%

Also referred to as “credit utilization,” amounts owed is calculated as how much you owe divided by your credit limit. To lenders, the thought is that if you credit utilization is high, it could suggest that you are spending beyond your means and are more likely to pay late or miss payments altogether. But, it gets even more complicated because a credit utilization of 0% could mean that you don’t have any credit cards at all (because you have bad credit.) or that you have a credit card that you never use (why would you get it then?)

Length of Credit History: 15%

This one is pretty straightforward. In general, the longer your credit history, the better your FICO score. This doesn’t mean that if you don’t have a long credit history you score will necessarily be low…but it seems that if all else is equal, the longer the history the better.

New Credit Request: 10%

How often you request new credit has in impact on your credit score. The logic behind that is that if you are financially responsible, you don’t need to open a new credit card every week. So to keep your score up, try not opening credit lines you don’t need.

Type of Credit: 10%

Finally, the type of credit you have affects your score, as well. Lenders will look to see your mix of credit cards, car payments, a mortgage, retail store cards etc. In general, it seems that people with higher FICO scores have a mix of credit.

Lenders Want To Minimize Risk

Exactly how your FICO score is calculated is unfortunately unknown, and exactly how important each of the 5 categories are is also not clear. But we do know that lenders want to minimize their risk, and will of course look at the individual factors, but will also look at your credit report as a whole. Check out the top 10 steps to improve you credit score.