Five Factors in the Development of Your FICO Score

If you're like most consumers, you might look at those three digits of your FICO score and scratch your head. You know that the Fair Issac scale falls between 350 and 800, with anything north of 700 considered the elusive "good" credit. Understanding the different categories of your FICO score and how they rank can demystify the numbers -- and help you take steps to improve a weak score and get in the habit of regular credit report checkups.

When You Pay Your Bills

Your payment history accounts for approximatelty 35 percent of your FICO score, according to Fair Issac. A pattern of late payments, accounts in collection and severe delinquencies will ding your report and chip away at your your score. And it can sneak up on you with little warning. For example, paying a utility bill or car note past the grace period for six straight months gets reported in your payment history as late payments of "30 days" or more. If possible, create an electronic auto payment program with your creditors to avoid this trap.

Outstanding Debt: What You Owe

The amount of debt you owe totals 30 percent of your score. This includes revolving credit lines, mortgages, auto loans, school loans and credit cards. Watch your debt-to-credit-ratio -- how much credit you use compared to the amount available. For example, using only 10 percent of your available credit (low utilization) versus 30 percent (high utilization) makes a difference to lenders. The lower the ratio, the better your overall score.

Established Credit

How long you've held a credit card, line of credit or department store card can work in your favor. In the eyes of the credit bureaus and Fair Issac, the longer the credit history, the better -- and it's 15 percent of your FICO score. When considering which credit cards to cancel, always pick the youngest of the bunch with the highest interest rate.

Credit Types

Fair Issac calculates the different types of credit you use and ranks this category 10 percent of your score. Think of types of credit in classes, such as retail credit cards, or gas cards, your mortgages and signature lines of credit (these don't require collateral). Different loans have varied levels of risk. For example, taking out high-interest loans, such as payday loans, places you in a high-risk profile: Lenders believe you have a stronger likelihood of defaulting than a consumer with a 30-year mortgage with an excellent payment history.

New Accounts

Every time you open a new account you create a record in your credit file. Impulsively opening accounts, signing up for credit card offers or multiple loans can whack your score -- FICO measures the final 10 percent of your score based on how much new credit you carry. But if you're trying to re-establish credit, a new account can benefit your score. By keeping the account active, with small purchases paid off in full at the end of the billing cycle, you gain points for responsible credit usage.