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How is Your FICO Credit Score Determined?

Written by Nickel - 12 Comments

I wrote the other day about the relationship between delinquency rates and FICO credit scores, but I didn’t really touch on what all goes into determining your credit score. According to Fair Isaac (the company responsible for FICO scores), here’s a rundown of what goes into your credit score, and the relative importance of each component:

Payment History – 35%
Amounts Owed – 30%
Length of Credit History – 15%
New Credit – 10%
Types of Credit Used – 10%

So if you want to maintain a high credit score, you’ll obviously want to pay on time and keep your credit utilization low (i.e., keep your balances low relative to your credit limits). It’s also a good idea to keep old cards open even if you don’t use them — after all, this increases the average age of your cards, and also decreases your utilization.

Clearly, applying for a bunch of new cards to take cash in on 0% balance transfers, free credit card miles, or cash signup bonuses can negatively impact your FICO score, but it’s a relatively small hit when compared to things like payment history and outstanding balances.

Published on March 14th, 2007 - 12 Comments
Filed under: Credit Cards

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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12 Responses to “How is Your FICO Credit Score Determined?”

  1. 1
    Blaine Moore Says:

    It is a relatively small hit, and it doesn’t really last all that long as your cards age.

  2. 2
    Tony Says:

    Can you explain how keeping more recent cards that you don’t use increases the average length age of your cards? I must be missing something because I have repeatedly heard the recommendation you make, but the reason you give does not justify the advice. For example: If I have 4 lines of credit of 20, 15, 10 , and 3 years, the average age of my credit line is 12 years. If I closed the 3 year-old account, leaving me with 3 lines of credit at 20, 15, and 10 years, the average age becomes 15 years.

    Further, you say that keeping the cards open decreases your utilization (percent of your maximum that you use?); however, it increases the amount you COULD spend. Let’s say I owe nothing on 4 credit cards that have a combined limit of $100k . My utilization is 0, but I have $100k that I could rack up after getting, say, a mortgage. In the specific case of utilization (0), wouldn’t your points suggest that it is ideal to get rid of the most recent card with, say, $20k of credit? I would still have zero utilization, but would now have a smaller cap that I could rack up (now $80k). It seems that a new creditor/FICO would take this into account; it should scare them that we have a huge open line of credit that we could potentially use. Otherwise, we should suggest to parents of 18 year olds to have their kids open as many credit cards as possible (and then keep them out of the kids hands to keep utilization at or near 0) to maximize the age of their credit history and that they should also avoid getting credit withing a year or two of buying a home.

    Even if utilization is not zero, it seems that there would be some “sweet spot” between available credit and utilization. I think FICO keeps their algorithm a secret, no?

  3. 3
    nickel Says:

    I’ve wondered this myself in the past, and the explanation that I’ve gotten is that if you cancel a card, it stays on your record (for awhile) but stops aging. So that three year old card would still count, but would never get older.

  4. 4
    Tony Says:

    That would make sense; I hadn’t thought of that point. However, should we recommend to parents to load their 18 year olds up with credit cards and then keep then serve as the one to ensure that they were not used? It seems as if it would reduce new credit, decrease utilization, and increase the age of the cards! It is that pesky not using them that seems to be the catch in my recommendation.

  5. 5
    Blaine Moore Says:

    I don’t know about loading them up with a bunch of credit cards, but doing at least one is certainly a good idea, Tony.

    Establishing credit at 18 means that they will have a “full” 7 year history by age 25. You only need one card with one payment early on to get that.

  6. 6
    Red Dawg Says:

    We’ll that is the conventional wisdom isn’t it… get an 18 year old a credit card. Perhaps the conventional wisdom is not so wise?

    I know you are asking for trouble if you get an 18 year old a credit card (I used to be one of them). It won’t be long and they’ll have it maxed out… and the potential for a life long cycle of debt begins.

    I don’t want to burden any one with that.

    I know what you may be thinking… what if the 18 year old is mature enough to handle the credit?… If you show me an 18 year old responsible enough to handle a credit card, I’ll show you one that doesn’t need credit in the first place.

  7. 7
    nickel Says:

    Red Dawg: What if you get an 18 year old a credit card, but don’t give it to them? Problem solved.

  8. 8
    Red Dawg Says:

    In theory, perhaps… though there is little (legally speaking) keeping the 18 year old from requesting a replacement card.

  9. 9
    nickel Says:

    Well, they could also just get a card themselves without any parental involvement, so that argument doesn’t hold water.

  10. 10
    whit Says:

    I got my first credit card at 18. I’m now 26, own my own home and have a credit score of 739. There is something to be said for the longer history.

  11. 11
    Mr.Arf!Arf! Says:

    Thanks for the great write-up Nickel! :) Wow you have some sassy commenters. I think you make some wonderful points. I only wish my parents understood enough of this to get me a credit card at 18, I did not decide to get one until 4 years ago (at 21) and recently opened 2 more this year to build credit. I could have much better length of credit history already, as you mentioned it would be at 7 years by now! :) I’ll get there and I’m glad to have learned a lot from your blog and some others. I feel like I’m putting myself through Financial school by learning so much over the past few months. lol! Keep it up! Thanks so much!

  12. 12
    Kenan Hobajabu Says:

    As for giving your 18 year old a credit card – you could do as my parents did: get an American Express card in my name when I was born, make a few purchases/payments on it, then put it in a safe and not tell me about it. Then, when I go off to college – it is given as an EMERGENCY card ONLY (obviously a level of trust is needed here and that due diligence is needed to monitor the statements of the card). I never did use it (but was nice to know I had a safety net if I needed one).

    I think the credit card companies frown upon this but I say f*** ‘em.

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