Fair Isaac Corporation provides one of the credit scores that lenders use when evaluating your credit application. Your "FICO" score is a number between 300 and 850, with a low number indicating a risky borrower and a high number indicating a low-risk borrower with good credit history. You actually have three credit ratings, one from each of the major credit bureaus, and all are based on a few types of information that appears on your credit report at that bureau.
Payment History
The most important factor in your credit score is your payment history, which makes up 35 percent of your score. This is what most people think of when they hear about a credit report. Creditors regularly report to the bureaus how much you paid and whether it was on time. The more on-time payments you have on your credit score, the higher your FICO score will be. Late payments lower your credit score, especially if they are recent. In addition to your accounts in good standing, your collection accounts, court records of bankruptcy or credit-related judgments and wage garnishments all affect your score.
Account Balances
Another 30 percent of your FICO score is made up of information on your account balances. In addition to the dollar amount you owe, your score considers the ratio of the amount you owe now to the amount you borrowed in the first place, or in the case of a credit card, your limit on the card. One of the best ways to improve your score in this area is to pay down your credit card balances so you are using only a small percentage of your available credit.
New Credit
About 10 percent of your score is based on credit that you have obtained recently. One piece of information that affects this area is the list of creditors that have looked at your report recently in response to your application for credit. Having many credit inquiries lowers your score. In addition, each new account that you open lowers your score, especially if a high proportion of your credit accounts are new.
Types of Accounts
Credit accounts fall into two major categories: installment accounts and revolving accounts. Installment accounts generally have a fixed monthly payment and an end date on which you will have paid your debt in full if you stick to the schedule. Mortgages and car loans fall into this category. Revolving accounts are those on which you are continually borrowing and repaying money, as with a credit card or line of credit. About 10 percent of your score considers the variety of account types that appear on your report. Having one or more accounts in each category helps your score because it shows that you can manage different types of credit.
Length of Credit History
The most difficult part of your credit score to change expediently is your length of credit history. This component makes up about 15 percent of your score. Your score does not only consider how long you have had your oldest account, but also how long you have had accounts in each of the categories of types of accounts. Your average account age also affects your score. The longer your credit history, the better your score.
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