Fico Score Calculation

Your FICO score is the single most important number in your financial life. Understanding the different factors used in the fico score calculation can improve your credit score and get you better terms on loans, credit insurance and more.

Fico score dominates the market with over 90% of creditors using it for their lending decisions. It ranges from 300 to 850, with the majority of Americans falling between 650 and 750 (See Average Fico Score for more information).

Fico is actually a mathematical algorithm that converts your credit history information (i.e. credit report) into a single 3 digit number that represent the risk involved in lending you money.

Fico score calculation considers 5 factors:

Here is a breakdown of the Fico Score Calculation:

Payment History contributes 35% to the FICO score. Any negative information such as late payments, charge-offs, collections, bankruptcies, liens and judgments lower your FICO score. In general, the older the item is, the less effect it has.

Total Debt contributes 30% to the FICO score. Three types of debt are considered:

• Revolving Debt such as Credit Cards, Gas Station cards and Retail credit cards debt.
  The most important term in this category is called “Balance-to-Limit Ratio” or “Revolving Credit Utilization”.
  This number represents the relationship between the your credit card balances and the available credit card limits. Credit utilization higher than 35% will lower your Fico score.
• Installment Debt such as car loans, mortgage or any other loans that you return in monthly installments.
• Open Debt (not so common these days) such as American Express Green).

Length of credit history contributes 15% to the FICO score. The older the credit report is – the better it is for the FICO score.

Credit file age is determined by two parameters:

• The oldest age that appears as “Date Opened” of all accounts.
• The average age of the accounts all accounts on the credit report.

Account Diversity contributes 10% to the FICO score. A diverse set of account types (installment, revolving, auto, mortgage, credit cards, etc.) actually contributes to a good FICO score because it shows the person’s ability to manage different account types.

Credit Inquiries contributes 10% to the FICO score. While all credit inquiries appear on an individual’s credit report, only hard inquiries are considered by the Fico Score Calculation.
For more detailed information on Fico Score Calculation see also Fico Score Rating.

By law, certain factors (such as age, gender, race, color & many more) are excluded from the fico score formula. See Factors excluded from the Fico score formula for more information.

Each of the 3 major credit bureaus has its own version of Fico. See Understanding Fico Scores for more information. See also What Are Good Credit Scores to learn about the impact your credit score has on your financial life.