How Does a Company Determine Your Credit Score?

Reporting Your Credit Score and FICO

Your credit score is determined not so much by a company but what a company sends to credit reporting agencies about your credit practices. There are three credit reporting companies that will use information about you; Experian, Transunion, and Equifax. Each one of these uses a system devised by the Fair Isaac Corporation (or FICO, as you probably know it). The system takes into consideration five elements when determining your credit score.

Have a Good Payment History

One of the most important things considered in determining your credit score is how well you pay your bills. This is called your payment history and makes up about 35 percent of your credit score. Everything from your cell phone bill, loans, utility bills, mortgages, and revolving credit is looked at in factoring in your payment history.

Credit Variety

10 percent, one of the smallest portions of your credit score, focuses on what kinds of credit you hold. If you hold only a vehicle payment, that is likely not enough. In order for the credit reporting companies to see all of your credit practices, a variety of credit is needed. Mortgage, rent, utilities, and revolving credit are all gathered to create your credit score. Credit reporting companies also look at how active those accounts are.

How Long is Your Credit History?

How long you've had a credit history makes up 15 percent of your credit score. Credit reporting companies don't only look at the activity but they also take into account when an account was opened, whether or not it is still open or has been closed and the activity that went on or is currently taking place. A short credit history may receive a lower score than someone who has a longer history.

What Do You Owe?

Factoring in how much outstanding credit you have makes up 30 percent of your credit score. The reporting companies look at balances still open on your credit history, what is owed on those balances and whether or not it is a secured account or unsecured. Being able to maintain a low balances on all accounts and having a low debt to income ratio can yield you a higher credit score.

What's New?

The remaining 10 percent of your credit score is achieved by accounting for the new credit you may have. Rapidly opening new lines of credit be it revolving credit, loans, or incurring new monthly payments can lower your credit score. Pace yourself when opening new lines of credit. Credit reporting companies and lenders may consider you a risk if numerous accounts are opened and rapidly approach their max.