How Is the FICO Score Calculated?

Components

There are five components that determine the FICO score. The most important is a consumer's record of on-time bill payment, which counts for 35 percent. A payment that is more than 30 days late is especially damaging and may lower a FICO score by up to 100 points. The total amount of debt compared to income is next, accounting for 30 percent of the score, and the length of a person's credit history comes next at 15 percent. The recent past is weighted heavily, so a good credit record for the past 2 years will usually give you a good score on this part. Another 10 percent is based on the type of debt. Excessive unsecured debt, such as too many credit cards, counts heavily here; secured debt, such as mortgages, is superior. The final component is often misunderstood. Constantly opening and closing credit accounts can take off up to 10 percent. However, occasionally doing so is not damaging to your credit. You should keep some accounts open so you can maintain a record of timely payments, but you don't need to keep every account you open forever.

Other Factors

There are several factors that can affect how a FICO score is calculated. Tax liens, foreclosures and court judgments for nonpayment of debt hurt a credit score. Defaults on loans, especially student loans, also lower a FICO credit score. Bankruptcy works a little differently. It's not good to have a bankruptcy on your credit history, but when a person declares bankruptcy, the damage to the FICO score is usually offset by the fact that much of the information in the credit history is wiped. Consequently, the FICO score usually does not fall much lower than it already was. In addition, the Fair, Isaac, & Co. model compares future credit behavior to that of other people who have declared bankruptcy, not to the general population. This means good handling of credit following a bankruptcy can rebuild a moderately good score in a couple of years.

Consumer Rights

Everyone is legally entitled to a free copy of his credit report from each of the three major credit bureaus once a year, but these reports do not include your credit score. To get your credit score, you have to pay a fee to the credit reporting company or a third-party vendor, though you can use free online software to estimate it. Despite what you may see advertised, the Federal Trade Commission authorizes only one source for free credit reports, AnnualCreditReports.com. You can go to the FTC site or directly to AnnualCreditReports.com using the links below, or call (877) 322-8228 to order a free copy of your credit report.