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There are 5 parts to your credit scores and each one is weighted differently. The exact formula for credit score calculations is guarded as heavily as the formula for Coca-Cola or the Colonel’s Secret Recipe, but FICO does give us some general guidelines.

1. Payment history – about 35% of your score. In the simplest terms, every time an on-time payment is made, a hash mark is made in the good column; every time a late payment is recorded, a hash mark is made in the bad column. When the number of marks in the good column makes up for the ones in the bad column, you will then see an increase in your credit score. I have literally seen credit scores go down by 60 or more points from one month to the next because a late payment was made on a credit card. In the mortgage industry, there is nothing worse than making a mortgage payment late.
2. How much you owe – about 30% of your score. The scoring looks for the ratio between the available credit and how high the credit balance is. Generally a ratio of 50% or lower is best.
3. Length of credit history – about 15% of your score. Generally the longer you’ve had to build your credit the better. However short credit history can provide good scores if there have not been any late payments.
4. New credit accounts – about 10% of your score. Demonstrating the ability for other lenders to extend credit is a sign of credit worthiness and it can help bump scores. Another area affected is the number of inquiries on your report. Generally if you are shopping for a particular type of loan, such as a mortgage, the credit bureaus distinguish between those and multiple, random types of credit. Shopping for a mortgage within a certain time frame, usually within a month, doesn’t damage your score as long as it’s a reasonable number of inquiries.
5. Other factors – about 10% of your score. Bureaus look for other factors such as the mix of credit available to you, or if you’ve registered with the National Opt Out program. Each bureau rates their miscellaneous factors differently.

So if there is a general percentage attributed to each factor, why do credit scores range from bureau to bureau? The main factor is because not every creditor on your credit report provides their information to all three bureaus. Usually mortgage lenders report to all three bureaus, but let’s say that you have an auto loan through a dealer that personally finances the vehicle. That auto dealer may only report to one of the bureaus, not all three. If so, your credit at the bureau the dealer reports to will either be increased or decreased, depending on your payment history.

There is a new FICO model coming out called FICO08.  It's supposed to help distinguish between the consumer who has a minor ding on their credit vs someone who habitually doesn't pay their bills.  As soon as it's released, I'll let you know more about it. 

Enjoy reading!  Please call me at 245-9855 or email at info@loansbyjolynn.com should you have questions!