FICO scores are your credit scores. They vary from person to person and can increase or decrease weekly, depending on a variety of different factors. Here is a brief outline of how your credit score is calculated.
Factors of Your Credit Score
There are five main sections that all calculated together to give you a final FICO credit score. These five main sections include payment history, amounts owed, new credit, length of credit history, and credit mix. Here is the breakdown of how the sections are calculated:
- Payment History – 35%
- Amounts Owed – 30%
- Length of Credit History – 15%
- New Credit – 10%
- Credit Mix – 10%
These factors are all weighted different amounts because some of the factors are more significant than others. For example, your payment history is much more important than your new credit because it is an active reflection of how much you have paid off and how likely you are to pay your debts back on time.
How Do These Change From Person To Person?
Each person is different and their credit score may be calculated a little bit differently, depending on their unique situation. For instance, a 70 year old will have their credit calculated much differently than a 20 year old. If you are younger and do not have a lot of credit your score will likely be affected much more by a missed payment or a credit check. If you are older and have a lot of credit and payment history, one credit check or a missed payment will not affect you much if you already have a great score.
What Do The Factors Mean?
Payment history is one of the most understandable factors that go into calculating your credit score. This simply means that you have or have not paid all your debts on time. This can include mortgage payments, auto payments, bills, credit card debts, student loan debts and more.
Amounts owed is another main factor of your credit score. This means that you either owe a lot of money to collectors or that you do not. For instance, if you own a home and have a mortgage the amount that you still have left on your mortgage is an amount that you owe. The larger the amount that you owe, the lower your credit may be. If you have a lot of debt, credit institutions may see you as more of a risk and therefore you will have a lower score.
Length of credit history is another main component. This simply means how long you have had credit. An older person will have a longer credit history than someone who is younger. The longer your history of credit with on time payments, the better your credit will be.
New credit is another factor to consider. This means if you have a lot of new credit opened. If you have a lot of new credit it can negatively affect your score, however, if it is mixed credit it can improve your score.