FICO Score Factors (for newbies)

I compiled this information from factors listed at the myfico.com site. Perhaps a permanent thread could be posted along with the
Creditnet Glossary (for newbies).


How a FICO Score is Determined (used by mortgage lenders)


Category 1- Payment History
35% of your score is based on this category. Items that factor in are:

--Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)

--Presence of
...................adverse public records (bankruptcy, judgements, suits, liens, wage attachments, etc.),
...................collection items,
...................and/or delinquency (past due items)

--Severity of delinquency (how long past due)

--Amount past due on delinquent accounts or collection items

--Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)

--Number of past due items on file

--Number of accounts paid as agreed

The first thing any lender would want to know is whether you have paid past credit accounts on time. -This is also one of the most important factors in a credit score.

However, late payments are not an automatic "score-killer." An overall good credit picture can outweigh one or two instances of, say, late credit card payments. By the same token, having no late payments in your credit report doesn't mean you will get a "perfect score." Some 60%-65% of credit reports show no late payments at all â?? your payment history is just one piece of information used in calculating your score.


Your score takes into account:


Payment information on many types of accounts. These will include:

-credit cards (such as Visa, MasterCard, American Express and Discover),
-retail accounts (credit from stores where you do business, such as department store credit cards),
-installment loans (loans where you make regular payments, such as car loans),
-finance company accounts and
-mortgage loans.

Public record and collection items â?? reports of events such as bankruptcies, foreclosures, suits, wage attachments, liens and judgments. These are considered quite serious, although older items and items with small amounts will count less than more recent items or those with larger amounts.

Details on late or missed payments ("delinquencies") and public record and collection items â?? specifically, how late they were, how much was owed, how recently they occurred and how many there are.

A 60-day late payment is not as risky as a 90-day late payment, in and of itself. But recency and frequency count too. A 60-day late payment made just a month ago will count more than a 90-day late payment from five years ago. Note that closing an account on which you had previously missed a payment or satisfying a judgment or collection item does not make the late payment or item disappear from your credit report.

How many accounts show no late payments. A good track record on most of your credit accounts will increase your credit score.



Category 2- Amounts Owed to Lenders
30% of your score is based on this category

--Amount owing on accounts
--Amount owing on specific types of accounts
--Lack of a specific type of balance, in some cases
--Number of accounts with balances
--Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
--Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

Having credit accounts and owing money on them does not mean you are a high-risk borrower with a low score. However, owing a great deal of money on many accounts can indicate that a person is overextended, and is more likely to make some payments late or not at all. Part of the science of scoring is determining how much is too much for a given credit profile.

Your score takes into account:

-The amount owed on all accounts.
Note that even if you pay off your credit cards in full every month, your credit report may show a balance on those cards. The total balance on your last statement is generally the amount that will show in your credit report.

-The amount owed on all accounts, and on different types of accounts.
In addition to the overall amount you owe, the score considers the amount you owe on specific types of accounts, such as credit cards and installment loans.

-Whether you are showing a balance on certain types of accounts.
In some cases, having a very small balance without missing a payment shows that you have managed credit responsibly, and may be slightly better than no balance at all. On the other hand, closing unused credit accounts that show zero balances and that are in good standing will not generally raise your score.

-How many accounts have balances.
A large number can indicate higher risk of over-extension.

-How much of the total credit line is being used on credit cards and other "revolving credit" accounts.
Someone closer to "maxing out" on many credit cards may have trouble making payments in the future.

-How much of installment loan accounts is still owed, compared with the original loan amounts.
For example, if you borrowed $10,000 to buy a car and you have paid back $2,000, you owe (with interest) more than 80% of the original loan. Paying down installment loans is a good sign that you are able and willing to manage and repay.




Category 3- Length of Time Credit Established
15% of your score is based on this category

--Time since accounts opened
--Time since accounts opened, by specific type of account
--Time since account activity

In general, a longer credit history will increase your score. However, even people who have not been using credit long may get high scores, depending on how the rest of the credit report looks.

Your score takes into account:

-How long your credit accounts have been established, in general. The score considers both the age of your oldest account and an average age of all your accounts.

-How long specific credit accounts have been established.

-How long it has been since you used certain accounts.




Category 4- Search for/Acquisition of New Credit
10% of your score is based on this category

--Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
--Number of recent credit inquiries
--Time since recent account opening(s), by type of account
--Time since credit inquiry(s)
--Re-establishment of positive credit history following past payment problems

People tend to have more credit today and to shop for credit â?? via the Internet and other channels â?? more frequently than ever. Fair, Isaac scores reflect this fact. However, research shows that opening several credit accounts in a short period of time does represent greater risk â?? especially for people who do not have a long-established credit history. This also extends to requests for credit, as indicated by certain "inquiries" to the credit reporting agencies, resulting from your requests for new credit. An inquiry is a request by a lender to get a copy of your credit report.

FICO® scores do a good job of distinguishing between a search for many new credit accounts and rate shopping, which is generally not associated with higher risk.

Your score takes into account:

-How many new accounts you have.
The score looks at how many new accounts there are by type of account (for example, how many newly opened credit cards you have). It also may look at how many of your accounts are new accounts.

-How long it has been since you opened a new account.
Again, the score looks at this by type of account.

-How many recent requests for credit you have made, as indicated by inquiries to the credit reporting agencies. Inquiries remain on your credit report for two years, although FICO scores only consider inquiries from the last 12 months. Note that if you order your credit report from a credit reporting agency â?? such as to check it for accuracy, which is a good idea â?? the score does not count this, as it is not an indication that you are seeking new credit. Also, the score does not count requests a lender has made for your credit report or score in order to make you a "pre-approved" credit offer, or to review your account with them, even though you may see these inquiries on your credit report.

-Length of time since credit report inquiries were made by lenders.

-Whether you have a good recent credit history, following past payment problems.
Re-establishing credit and making payments on time after a period of late payment behavior will help to raise a score over time.




Category 5- Types of Credit in Use (Credit Mix)
10% of your score is based on this category

--Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open credit accounts you don't intend to use. The credit mix usually won't be a key factor in determining your score â?? but it will be more important if your credit report does not have a lot of other information on which to base a score.

Your score takes into account:

-What kinds of credit accounts you have, and how many of each. The score also looks at the total number of accounts you have. For different credit profiles, how many is too many will vary.

 

Nave,
Looks like you've got the beginnings of a good FAQ page. It's great that someone took the initiative to do that.

But-- until a moderator or other controller decides to permanently post this FAQ thread on the CreditTalk start page along with the GLOSSARY posting, this FAQ Suggestion thread is next to worthless. I say that because the newbies like me, who can use the information in the FAQ thread, don't even know it exists. I didn't. And the newbies won't know it exists until a moderator posts it permanently on the startpage.

Great beginning. But how do we get the moderator to make a permanent posting?

Is it public knowledge who the moderator is?

We also need OldTimers like PsychDoc to make contributions to enhance/expand the FAQ listings.

 

Thanks Nave.

Regarding content- That's why I stated the need for promoting input from others like PsychDoc. The FAQ obviously needs more content. But if that's not promoted, it will likely be many months before sufficient content accrues of its own.

(Nothing in my postings here were intended to be contentious.)