Improve Credit Scores

FACTORS THAT AFFECT FICO SCORES

FICO's scoring summary (www.myfico.com) lists five categories that affect a score: payment history, amounts owed, length of credit history, types of credit used, and new credit. Each category is further broken down into subfactors, for a combined total of 22 factors. The process of generating is a score is what FICO refers to as a "multi-variant analysis." I guess this is just a fancy way of saying that multiple variables are analyzed. Here is the exact language from FICO's Web site showing how each factor is weighted:

Payment History - [35%]

• Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)

• Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past-due items)

• Severity of delinquency (how long past due)

• Amount past due on delinquent accounts or collection items

• Time since (recency of) past-due items (delinquency), adverse public records (if any), or collection items (if any)

• Number of past-due items on file

• Number of accounts paid as agreed

Amounts Owed - [30%]

• Amount owing on accounts

• Amount owing on specific types of accounts

• Lack of a specific type of balance, in some cases

• Number of accounts with balances

• Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)

• Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

Length of Credit History - [15%]

• Time since accounts opened

• Time since accounts opened, by specific type of account

• Time since account activity

New Credit - [10%]

• Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account

• Number of recent credit inquiries

• Time since recent account opening(s), by type of account

• Time since credit inquiry(s)

• Reestablishment of positive credit history following past payment problems

Types of Credit Used - [10%]

• Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

*Please note that:

A score takes into consideration all these categories of information, not just one or two. No one piece of information or factor alone will determine your score.

• The importance of any factor depends on the overall information in your credit report. For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score. Thus, it's impossible to say exactly how important any single factor is in determining your score-even the levels of importance shown here are for the general population and will be different for different credit profiles. What's important is the mix of information, which varies from person to person and for any one person over time.

• Your FICO score only looks at information in your credit report. However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.

• Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Payment history accounts for 35 percent of the total score, meaning it's essential that you pay your bills on time and remove the worst of bad credit from your credit report. But the remaining 65 percent of the pie comprises amounts owed (30 percent), length of credit history (15 percent), types of credit used (10 percent), and new credit (10 percent). That means you can have a perfect payment history, and two-thirds of your credit score is still blowing in the wind! It's also important to note that since FICO bases its scoring summary on the average person, the weight given to certain factors can shift depending on the individual. For example, payment history might account for 70 percent of a total score if other aspects of the credit report warrant it- such as an abundance of new and subpar accounts or short age of the credit history (explained shortly).