"How is My Credit Score Calculated?"

A credit bureau score is a snapshot of your credit risk picture, at a particular point in time. Lender’s use the number to help them decide, "If I give this person a loan or credit card, will I get paid back on time?". Credit Bureau scores are calculated using a computer based scoring model, developed by a company called Fair, Isaac. Fair, Isaac develops the software used by banks and credit bureaus to generate scores. When you apply for a loan, your bank may request one of the 3 credit bureaus to run a credit bureau score. Once the score is calculated it is returned to the lender.

There are 5 main categories used to calculate a Credit Bureau Score:

The FICO or credit score ranges are broken down as follows:

"Do you make your payments on time?" is the first thing lenders will want to know, and this is one of the most important factors in a credit score. However an overall good picture can outweigh one or two late payments. Payment history on credit cards, retail accounts, mortgage loans, etc. are all taken into account. Delinquencies (late or missed payments) may be considered very important. The recency and frequency of these late payments will directly impact your score. Approximately 35% of your score is based on this particular category.

The amount of Outstanding Debt is also a significant factor in determining the risk of lending you additional funds. The score takes into account how much of your available credit is being used. Someone who is close to "maxing out" on many credit cards may have trouble making payments in the future. The score also factors in the percentage of installment loans still outstanding versus the original loan amounts. Approximately 30% of your score is based on this particular category.

The length of your credit history contributes about 15% of your score. Your score considers how long accounts have been established and how long since they were last used.

The number of new accounts is taken into account. The score looks at the type of new accounts opened and how many of your accounts are new. It also factors in, recent requests for credit that you have made. Approximately 10% of your score is based on this particular category.

Finally the score will consider the types of credit in use, and weather it is a healthy mix. This is not a key factor, contributing about 10% of your score, but may be more important if your credit report does not have a lot of other information on which to base a score.

Credit scores reflect a person’s long-term patterns of credit use and repayment history over time. Scores improve as your credit performance picture gets better. So an accumulating historical pattern of paying bills on time and using credit responsibly will always improve your score. You should: