What Is Your Credit Score Composed Of?

The FICO credit score, calculated by the Fair Isaac Corporation, represents the most widely used credit scoring system. It parses data from the three major credit bureaus and breaks the numbers down into five main components, each of which is weighted according to time-tested methods of consumer payment behavior and the likelihood that credit accounts will be paid in full.

Payment History

At 35 percent, a consumer's payment history represents the single most influential factor in her credit score. Late payments are an obvious source of a lower score, but so are minimum payments. Creditors like to see that their customers are liquid enough that they can pay more than just the bare minimum. Even paying a single dollar over the minimum impacts a score positively.

Debt-to-Income Ratio

The debt-to-income ratio derives from a common accounting term that reveals how much of a consumer's income goes to pay down debt. The clichs rightly have us believe that life is full of surprises and that it is critical to save for a rainy day. A debtor who owes a significant amount on each account is subject to the vagaries of unpredictable daily circumstances that can turn a once pristine payment history into a game of perpetual catch-up. Ideally, total debt payments should not consume more than a quarter of income, and this ratio counts for 30 percent of his score.

Credit History Length

If a consumer maintains payment consistency, that pattern begins to represent character and responsibility, not just the ability to keep paying. Creditors value such behavior both figuratively and literally, as the accounts that pay on time, every time, over many years, are least likely to default. This factor comprises 15 percent of the total credit score.

New Credit and Type of Accounts

Consumers who open up new accounts more frequently than fast-food restaurants appear on street corners tend to fall into the higher-risk category. The question becomes why so much new credit is necessary. This accounts for 10 percent of a credit score. The type of new credit also impacts scores. Creditors more favorably look upon individuals who take out a mortgage, for example, rather than a payday loan, which suggests serious cash-flow problems. This makes up the final 10 percent of a credit score.