If you have credit, you have a FICO score. But how is it calculated? The Fair Isaac Corporation perpetuates the mystery of its FICO scores by never releasing the details of the FICO formula. Even if it were known, the fine points of its methodology are still subject to change at its discretion.
How is FICO Calculated?
FICO does not even produce the scores itself; FICO creates the software that is used by the three major credit bureaus. Those companies, Equifax, Experian, and TransUnion, plug their data into the FICO formula to produce proprietary results.
Fortunately for consumers, FICO has disclosed a general outline of what information is used, and how it is weighted.
Key Takeaways
- The Fair IssacCorporation issues FICO scores, but the exact formula for calculating the scores is ambiguous.
- Equifax, Experian, and TransUnion plug their data into the FICO formula to produce information about a person's credit.
- FICO scores are issued to consumers and have three main categories: credit history, credit utilization, and credit history.
Payment History
Your payment history is the most critical factor in your FICO scores. Your history includes which of your accounts were paid on time, the amounts owed, and the length of any delinquencies. Also included are any adverse public records such as bankruptcies, judgments, or liens. All of this information collectively comprises 35% of a FICO score.
Your Debt vs.Your Credit
At 30%, the next most crucial factor is your debt. This data includes the number of accounts you owe money on, the type of debt, and its total amount. Also included is the ratio of money owed to credit available, often referred to as a credit utilization rate. Interestingly, this calculation means that when a consumer opens up a new account and has more available credit, their credit utilization ratio will go down, so long as they do not incur additional debt.
Length of Credit History
Beyond your payment history and your debts, the FICO formula takes into account three other factors in much smaller proportions. Your length of credit history makes
up 15% of your score. This factor includes the length of time your accounts have been open and how long it has been since they have been active.
Because the length of time impacts your score is why recent immigrants and young adults start with lower credit scores. The types of credit used comprise another 10% of the FICO derived scores.
In general, having a greater variety of differing types of accounts such as credit cards, mortgage payments, and retail accounts is more beneficial than holding fewer.
New Credit Applications
The last 10% of your FICO score is made up of data related to new credit applications, such as the number of recent credit inquiries and how many new accounts have been opened. Opening up too many accounts in too short of a period is interpreted as a sign of risk and will lower your score.
The Bottom Line
Reportedly, when asked to sum up the entire Old Testament, the Jewish scholar Hillel is supposed to have said, "That which is hateful to you, do not do to your fellow. That is the whole Torah; the rest is the explanation; go and learn." Likewise, one could summarize the FICO scoring formula by saying, "You should pay your bills on time and not incur too much debt; the rest are details."
Although your payment history and the amount you owe may only make up 65% of your FICO score, it would be difficult to run afoul of the remaining criteria while paying your bills on time and carrying little debt.
There is an aura of mystery surrounding the FICO score, but it doesn't have to be that way. While it is helpful to know the fundamentals of the FICO formula, consumers should not be tempted to feel like they can game the system. Ultimately, your FICO score will be closely dictated by your payment history and your level of debt.
FAQs
The main categories considered are a person's payment history (35%), amounts owed (30%), length of credit history (15%), new credit accounts (10%), and types of credit used (10%). FICO scores are available from each of the three major credit bureaus, based on information contained in consumers' credit reports.
How is your FICO score determined? ›
What's in my FICO® Scores? FICO Scores are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).
How much does your FICO score differ from your credit score? ›
Basically, "credit score" and "FICO score" are all referring to the same thing. A FICO score is a type of credit scoring model. While different reporting agencies may weigh factors slightly differently, they are all essentially measuring the same thing.
How do I know if my FICO score is accurate? ›
Bottom line. Keep an eye on all three credit reports for errors that could be affecting your credit score. Regularly check both your FICO score and your VantageScore and, before applying for a line of credit, ask the lender which scoring model and version it uses.
How is a FICO 8 score determined? ›
It is based on an individual's payment history, amount of debt, length of credit history, new credit inquiries, and types of accounts they have.
Is a 900 credit score possible? ›
While achieving a CIBIL Score of 900 is technically possible, it is extremely rare. Scores above 760 are considered very good or exceptional, providing significant benefits such as lower interest rates and higher chances of loan approval.
What is a good FICO score? ›
Is Experian or FICO more accurate? ›
Simply put, there is no “more accurate” score when it comes down to receiving your score from the major credit bureaus.
Why is my FICO score 100 points higher than Credit Karma? ›
Your FICO Score is a credit score. But if your FICO score is different from another of your credit scores, it may be that the score you're viewing was calculated using one of the other scoring models that exist.
Does viewing your FICO score lower it? ›
Good news: Credit scores aren't impacted by checking your own credit reports or credit scores. In fact, regularly checking your credit reports and credit scores is an important way to ensure your personal and account information is correct, and may help detect signs of potential identity theft.
While income doesn't have a direct impact on your credit score, it can have an indirect impact since you need to have sufficient income to pay your bills. And if you don't make enough money to cover your bills, you can rack up debt or miss payments, which can negatively impact your credit score.
What affects FICO score the most? ›
What Affects Your Credit Score?
- Payment History: 35% Your payment history carries the most weight in factors that affect your credit score, because it reveals whether you have a history of repaying funds that are loaned to you. ...
- Amounts Owed: 30% ...
- Length of Credit History: 15% ...
- New Credit: 10% ...
- Types of Credit in Use: 10%
3 steps to take to find your true FICO Score
- Step 1 – Check with your bank or credit union. The first step you can take towards finding your FICO Score is by checking with your bank or credit union. ...
- Step 2 – Contact your credit card issuer. ...
- Step 3 – Take out loans.
Conventional loans typically require a minimum credit score of 620, though some may require a score of 660 or higher. These loans aren't insured by a government agency and conform to certain standards set by the government-sponsored entities Fannie Mae and Freddie Mac.
What FICO score do most lenders use? ›
For other types of credit, such as personal loans, student loans and retail credit, you'll likely want to know your FICO® Score 8, which is the score most widely used by lenders.
Which FICO score does Amex use? ›
Where does the data on American Express® MyCredit Guide come from? The data on your MyCredit Guide is based on your Experian® credit report. Your FICO® Score is calculated based on information in that credit report.
What makes my FICO score go up? ›
Reduce the amount of debt you owe
Keep balances low on credit cards and other revolving credit: high outstanding debt can negatively affect a credit score. Pay off debt rather than moving it around: the most effective way to improve your credit scores in this area is by paying down your revolving (credit card) debt.
Is myFICO the most accurate? ›
The main benefit of using myFICO is that it's a one-stop shop that shows your scores and reports from all three bureaus. Also, as the official consumer division of FICO, myFICO uses the industry standard credit scores, which are the most accurate way of tracking your current credit status.
What does your FICO score start out as? ›
What is the starting credit score? That answer doesn't technically exist. The truth is there's no such thing as a “starting credit score.” Some people wonder whether the starting credit score is zero, for example, or whether we all start with a credit score of 300 (the lowest possible FICO score).
How does one get their FICO score? ›
Obtain a FICO Score from credit bureaus
The three major credit bureaus offer free credit reports, which include FICO Scores, allowing you to monitor your credit health at no cost. You can get a free FICO Score once a year directly from one of the three major bureaus: Equifax® Experian®
