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The Credit Scoring Mystery

How your credit score is calculated is like the secret formula for Coca-Cola—nobody really knows!

However, FICO has recently posted five percentage categories on what’s most important when figuring a credit score.

    • Payment History: 35%
    • Length of Credit History: 15%
    • Amount Owed: 30%
    • Types of Credit: 10%
    • New Credit: 10%

Here’s a short synopsis of each category and what it means to you.

Payment History – Notice that this category holds the most weight. It looks at late payments. Thirty days late is not as significant as 60 to 90 days late. It also looks at the last time the payment was late—the more time that passes, the better. They also consider how many times a payment has been late. Let’s say you’ve made 56 payments on time, with only one of them being late — that has less impact than if you’ve made 56 payments and 12 of them were late.

Length of Credit History – While the percentage is on the lower end of the scale, it still matters. They are looking to see when you first started using credit, the number of accounts and how long you’ve had them. If you’ve just started using credit, it’s possible to still get a good credit score, but everything else has to be positive.

Amount Owed – If there are high balances or credit cards have been maxed out, the credit scoring formula figures that it is a greater risk and the credit score will be lowered. One side note here: Closing a credit card account that currently has an outstanding balance can actually HURT your credit score.

Types of Credit – This is one of the areas of confusion because the scoring models do not reveal what “mix” of credit helps or hurts a credit score. What I do know is that they are looking for auto loans, the number of mortgages, installment loans and credit card accounts, and whether those are “balanced” versus having 5 car loans and no credit cards.

New Credit – Opening new accounts is not a bad thing, but it may hurt a credit score if a person applies for a lot of credit in a short period of time. They look at how many accounts were applied for. How many new accounts were opened and over what time period the new accounts were opened. Inquiries (meaning if you were shopping for the best rate for a car loan and talked with 5 banks) do not have as much impact as if you applied for 5 different credit cards.

If you’d like to know more about credit scoring, visit, and let me know if you would like advice on how to increase your credit score.

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