Credit Scoring Components |
By Kenneth Long on January 20, 2010 (Updated June 10, 2010)
.jpg.aspx?width=75&height=75) Credit scoring is based on certain aspects of your financial behavior. Some elements are weighted much higher than others, so it is important to understand how your credit is scored if you want to improve your scores.
35% Payment History
Your payment history is more important than any other credit scoring factor. See the short and long-term effects of your payment history on your credit scores.
30% Debt Balances and Ratios
How much you owe in relation to your credit limits is a major factor in credit scoring. Large debts with some accounts can hurt you more than others also.
15% Duration
Credit scoring rewards long-term use of credit. See how your seasoned credit accounts are the cornerstone of your credit history.
10% New Credit
Signing up for or applying for new credit accounts always lowers your credit score initially. Find out why you should only apply for credit when needed. Also discover how certain exceptions may apply for vehicle or mortgage loan inquiries.
10% Credit Mix
A small portion of your credit score factors in your usage of various classifications of credit accounts. See how a proper mix of revolving and installment loan accounts can help you reach higher scoring thresholds.
This may appear to be a simplified list of credit scoring components, which it is. There are actually many factors that go into credit scoring, but they tend to follow the above allocation.
There is actually an entire list of individual credit score factors that contribute to credit scoring. These individual factors generally fall within one of the categories listed above.
Actual credit scoring formulas are trade secrets. The creators of these formulas include Fair Isaac Corporation as well as the three main consumer credit bureaus: Experian, Equifax and Trans Union. Some credit formulas are variations of those created by Fair Isaac. Others are proprietary formulas created by credit bureaus using their own internal resources.
Despite all of this secrecy surrounding the credit scoring formulas, the general components of credit scoring are eagerly shared by those who control it. The information provided above regarding credit scoring components is made available by Fair Isaac Corporation and the credit bureaus that adapt their formulas from the FICO models.
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