How Is a Credit Score Calculated?
How you pay your bills and debt accumulation are the two most important factors in calculating your credit score. Your FICO Credit Score is weighted as follows:
| Percentage | Factors | |
|---|---|---|
| 35% | Past payment history | Late payment notations, charge-offs, bankruptcies, judgments, liens, wage attachments Number of accounts, how many paid as agreed, how many past due, collection accounts Time since past due items charged off, paid Amounts owed on all accounts, number of accounts with |
| 30% | Outstanding debt | |
| balances, number of accounts paid, debt-to-credit limit ratio, types of accounts (loans, credit cards) | ||
| 15% | Length of credit history | Time since accounts were opened and time since last activity Time since last delinquency |
| 10% | Recent credit applications | Types of new accounts opened, if any, number of inquiries, how many recent inquiries |
| 10% | Account mix | ypes of various credit accounts (loans, credit cards, mortgages, etc.) |
The following factors are NOT included in computing your FICO® credit score:
- Demographic variables, such as your age, race, religion, sex, or marital status
- Your salary, location, profession or employment history
Note that lenders WILL consider your age, education level, location, profession, and income when deciding whether to approve your loan in addition to your credit score.
You Have Three Credit Scores
A lender can acquire your FICO credit score at Experian, TransUnion and Equifax. The credit bureaus have different names for their FICO credit scores:
Experian — called the “Experian / Fair, Isaac Risk Model”
Equifax — called the “Beacon credit score”
TransUnion — called the “Empirica”
You can order your credit score online at each credit bureau’s website or get all three credit scores at www.myfico.com.
Your credit score at each of the three credit bureaus will be different because each credit bureau has different information about you in your credit report. For example, your current auto loan might be reported only to Equifax and TransUnion and not Experian, while a particular credit card account is reported to Experian and TransUnion but not Equifax. The phone bill you defaulted on is reported only to TransUnion, making your credit score with that particular credit bureau significantly lower than your score at the other two credit bureaus.
Editor’s Note:
We at Jewelry Outlet always want to remind our customers why it is important for them to obtain and responsibly use credit. One helpful way to improve one’s credit is by adding a trade line and then only using a small portion of the trade line. This is an example of utilization, which is 30% of the credit score calculation. Thus with a top score of 850, the utilization category is 255 points of the total credit score (850 x .30).
If someone had one department store trade line of $500, but had maxed out the trade line by charging $500 of goods and services, then this person would lose almost all of the 255 points (out of 850), having a very high utilization of 100%. Thus assuming all other things on the person’s credit report were good, the highest credit score this person could achieve might only be 595 (850 – 255), as this person might lose all points for having a high utilization.
But if this person obtained another trade line (maybe a jewelry store account) for $5,000, now the person’s utilization would be only 9% ($500/$5,500). Thus this person’s credit score would increase, maybe by as many as 200+ points, possibly bringing the score up to over 800.
The person’s interest rate on an auto loan with a 595 score might be as high as 20%, whereas the interest rate with an 800 credit score might only be 2% to 5%. If someone purchased a $20,000 car, the lower interest rate would save $250 per month, for having good credit and low utilization.
This is the power of low utilization. And this why it is important to obtain a jewelry store trade line with a high limit.
Jewelry Outlet is the number one online jewelry retailer to help you enhance, establish and/or rebuild your credit. We offer easy credit terms for people with bad credit, new credit and no credit. Click here to Apply for Credit
Posted by Christian C Culpepper