The Fair Isaac Corporation (FICO) is one of several companies that calculates consumer credit scores. Known as a FICO score, this three-digit number is used by lenders, employers and other organizations to determine your credit risk. Your FICO score is calculated based on a number of factors. Knowing the composition of your score can help you improve your credit over time and develop healthy financial habits.
Payment History
Your credit score is broken down into percentages, and the most heavily weighted portion in the calculation is how you pay your debts. According to myFICO, 35 percent of your score is based on payment history. If you have frequent late or missed payments or if you have accounts that have been sent to collections, these will lower your FICO score. Negative items can remain on your credit for up to seven years, but regularly making your payments on time can help to minimize the damage and improve your FICO score over time.
Total Debt
The amount of debt you owe accounts for 30 percent of your total FICO score. The key is to minimize your debt-to-credit ratio -- or the amount of debt you carry relative to your available credit. The closer your total debt is to your credit limit, the higher your debt-to-credit ratio will be and the more it will lower your score. According to myFICO, this is especially true if your debt is owed mostly to credit cards or other revolving debts. Paying down your debts to increase your cushion of available credit can can help increase your score.
Age of Accounts
The age of accounts and the length of your credit history makes up an additional 15 percent of your credit score. The older your accounts are, the better your FICO score will be. If you have a long credit history, you may want to avoid closing old accounts even if you don't use them, as this can impact your score adversely. If you're just beginning to build your credit, avoid opening too many new accounts as this can cause your score to drop.
New Credit
The number of recently opened accounts and the number of times a lender, collection agency, utility company or other organization requests your credit history also have an impact on your FICO score. According to myFICO, recently opened credit accounts and new inquiries into your credit account for 10 percent of your score. If you're trying to re-establish credit, refrain from applying for multiple credit lines at once to avoid a drop in your score.
Types of Credit
The type of credit accounts you carry makes up the remaining 10 percent of your FICO score. For example, depending on your age and situation, you may have a mortgage loan, vehicle loans, student loans, credit cards or personal loans on your credit history. Having a mix of types of credit tells lenders you are able to handle different kinds of financial obligations, and it improves your FICO score.
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