Score Advice

The FICO® Score Powered by Experian and You: Understanding Key Factors

Financial blogger Ash Cash joins to share information on the major factors that can shape a FICO® Score .

As many people may know, having a low credit score can prevent you from getting loans, renting or buying a home, purchasing a car, and possibly even opening a bank account. But knowledge is a great place to start when planning a brighter future for your credit. Your FICO® Score powered by Experian is a lender score, so when you consult it, you're seeing the same type of information that banks and lenders see. Understanding FICO® Scores is easier once you know how they're calculated.

FICO® Scores consider five types of information in their calculation:

  • Your payment history (35 percent)
  • Your debt usage ratio: how much you owe in relation to your credit limit (30 percent)
  • How far back your credit history goes (15 percent)
  • New credit (10 percent)
  • Your mix of various types of credit (10 percent)

Your payment history includes recent payment record of car loans, mortgages, retail accounts, installment loans, credit cards and more. Making sure you pay your bills on time is critical, because recent late payments and accounts in collection can have a significant negative impact on your Score.

Your debt usage ratio calculates the total amount owed on revolving accounts in relation to the total credit limit. It's important to keep your balances low on credit cards and other revolving accounts. A general rule of thumb is to keep your balance below 30 percent of the total credit available. By this logic, you wouldn't want to spend more than $300 with a $1,000 credit limit.

Length of credit history looks at the age of your accounts, number of recently opened accounts, time since account activity, proportion of new credit vs. established credit, and the re-establishment of new credit following any adverse payment problems. If you're just establishing your credit history, carefully consider opening any new accounts. New accounts may bring down your Score temporarily, especially if you're just starting out.

Rapid account buildup can be seen as a risk to potential creditors. If you have past payment history problems, work to get back on track as soon as you can. Opening new accounts you can afford to pay off on time can positively impact your credit scores in the long term.

Additionally, new credit/hard inquiries are considered. The calculation considers the number of recent hard inquiries, the time since a hard inquiry, the number of recently opened accounts, and the time since opening an account. A hard credit inquiry appears on your report if your credit report was requested and delivered while you were seeking new credit. If you or your current lenders request your credit report, this is not usually considered in your credit score calculation.

Lastly, a balanced credit mix is important when managing your finances. Your credit mix refers to the different types of accounts — credit cards, retail accounts, installment loans, mortgages and consumer finance accounts — that can impact your credit scores. In general, a varied mix of credit types can have a more positive impact on your credit scores than a credit report that shows only one type of credit.

Ultimately, your understanding of how FICO® Scores are calculated helps you identify the most important elements of your Experian credit report. Your credit report shows your credit behaviors. Now that you know how your behavior impacts the calculation of your credit score, you'll be able to see how your actions are reflected in the FICO® Score powered by Experian data.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

FICO is a registered trademark of the Fair Isaac Corporation.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Experian.

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