Understanding Your Credit Report Score

One very important element of your personal credit report is your credit score which is often referred to as your FICO score – named after the Fair Isaac Corporation which devised the scoring system.

What Is Included In Your Credit Score?

Exactly how your FICO score is calculated is a complex matter and the details of the formula used for its calculation are not generally publicly available. However, what we do know is that it takes five main things into consideration:

1. 

   Your Payment History. Your payment history will includes such things as the number of accounts which you have paid as agreed, negative reporting from public records or collection agencies and delinquent accounts, including the number and length of any past-due payments and how long it has been since you last had a past-due payment. Your payment history is the most important element of your FICO score and account for about 35% of the total score.

2. The Amount You Owe. How much you owe will include not simply the total amount of money owed but also the various different types of account recorded and the balances on each. It will also look at how much revolving credit you have used and whether or not you may be over-extending yourself here. Installment loan account will also be considered to see whether or not these are being paid down as agreed. Finally, the number of zero balance accounts you have will be taken into account. This is the second most important element of your FICO score and accounts for about 30% of your overall credit score.
3. The Length Of Your Credit History. Your score will also take into consideration the length of time for which the bureau has been tracking your credit history as the more information a creditor has available the more confidence he can have in making a decision about your credit worthiness. Here such things as the length of time that has elapsed since individual accounts were opened and the period of time that has passed since there was activity recorded on your record will the taken into account. This accounts for about 15% of your total credit score.
4. Forms Of Credit. Your score will also consider the mix of credit shown on your report as most creditors will prefer to see a mixture of such things as mortgage, installment and revolving credit, rather than simply a number of lines of revolving credit such as credit cards. This accounts for some 10% of your score.
5. New Credit. Creditors will also be concerned to see a normal pattern of borrowing over time and so will look at any new credit to establish whether or not you are attempting to open too many lines of credit all at the same time. Here they will look at the number of account which you have opened recently in relation to the total number of accounts shown on your record and the number of credit inquiries which you have made recently, together with the time which has elapsed between making these enquiries and opening new accounts. They will also consider whether or not you have established a good credit history having previously encountered problems in meeting payments. This accounts for approximately 10% of your overall FICO score.

What Is Not Included In Your Credit Score?

Although your credit report a lot of information about you not all of this information is considered when it comes to calculating your credit score. For example, the following information forms no part of your credit score calculation:

• Your color, race, national origin, religion, gender and marital status.
• Your age.
• Your occupation (details of your employer, time employed or employment history) and salary.
• Where you live.
• Child or family support.
• Rental agreements.
• Involuntary credit inquiries.
• Any information which is not contained in your credit report file.

What Is The Range Of Credit Scores?

Once all of this data is fed into a computer you will receive a credit score which which will be between 300 to 850 and this score becomes crucial in determining whether or not you will be granted further credit.

What Do Various Credit Scores Mean?

Banks, mortgage companies, credit card issuers and other lenders have their own criteria for granting loans and, while your credit score is a very important element in any lending decision, there are also other criteria which come into play. It is impossible therefore to simply give a figure which will guarantee that your credit application will be approved.

In general however a score of below 600 is considered to be poor, while a score of between 600 and 700 is marginal and you may or may not be granted credit depending upon the views of individual lenders. If you can get your credit score above 700 then you will usually find that you can obtain credit and will also often be offered more options for financing and preferential rates of interest.

What Is The Average Credit Score For Americans?

About 15% of Americans have a FICO score below 60, 27% fall between 600 and 700 and 58% have a FICO score between 700 and 850. These numbers of course vary over time as FICO scores are constantly being updated but, at present, the average FICO score is about 725.

What’s My Credit Score?

You may apply to the major credit bureaus once in any 12 month period for a free copy of your credit report and may also obtain your credit score although, while the report is free of charge, a fee is normally charged for providing your FICO score.

One important thing to remember is that reports held by each credit reporting bureau will differ slightly and that each bureau will also provide a slightly different score, not only because the information held by each bureau is different but also because each bureau calculates credit scores in a slightly different manner.

For this reason, although we talk about your ‘three bureau credit report’ you do in fact need to request three free annual credit reports – one from each bureau. For more information on obtaining your credit reports please see our article “How to get a free copy of my credit report“

If your credit score is currently low and you would like to look at ways to improve it then please see our article entitled “How do I repair my credit rating“.