General breakdown of the 5 categories FICO looks at for your credit score

General breakdown of the 5 categories FICO looks at for your credit scoreA picture of the number 5 with the word, "General breakdown of the 5 Categories FICO looks at for your credit score"

FICO is the dominant credit scoring model in the country used to determine eligibility for mortgages, auto loans, credit cards, and more.

There are 5 categories used by FICO to determine your credit score:

  1. Payment History
  2. Amount / Utilization of your debt
  3. Age of debt
  4. Number of inquiries
  5. Mix of debt

In this article, we will provide a brief overview of these categories and what they mean. 

Payment history (35% of your FICO score)

Are you late? Do you have charge offs?

Your payment history makes up about a third of your FICO score.

Since this affects a third of your score, you want your payment history to be as clean as possible. 

If you have any late payments – 30 days, 60 days, etc. past due – you want those to be as far back in time as you can get them. 

The further in the past that these late payments are, the less you have to be concerned about them.

If you are applying for a loan and were 30 days late on a credit card payment 5 years ago, the lender will not be as concerned as if the late payment happened a month ago. 

Usage of credit or credit utilization (30% of your FICO score)

You want your credit usage (also known as credit utilization) to be as low as possible.

For example, you have a $10,000 credit card and you have a $2,000 balance on it. This means you have 20% credit utilization. This is good.

You want to keep this percentage low, while still using the card.

If your credit utilization is maxed out with a high percentage, the scoring model sees this as a concern.

The purpose of the scoring model is to anticipate and predict how likely a person is to default on the new loan or credit card. 

If you are maxed out, FICO believes something is wrong and you are living beyond your means.

If you are living beyond your means and something interrupts your income, you will be much more likely to default. 

Age or length of debt (10-15% of your FICO score)

This is how long your credit accounts have been established.

If the average age of your debt is 20 years, that’s pretty stable.

However, if the average length is 2 months, this could be a warning sign if you have a bunch of new credit.

The longer your account has existed, the higher your credit goes up.

You can’t control time. You can’t change the date a card was opened.

However, if you have a 10-year-old card that you don’t really use anymore, check with a mortgage broker or someone that deals with this type of scoring to see if this will hurt your score to close the account.

If you close a well-aged account, this could negatively affect your score.

Inquiries (10-15% of your FICO score)

There are two types of credit inquiries – soft inquiries and hard inquiries.

Soft inquiries, promotional inquiries, account reviews, do not affect your score. 

Hard inquiries do affect your score. This is usually where you are applying for a car loan or a mortgage to see what you qualify for.

Typically, if there are several applications made within a short period of time, this only counts as one hard inquiry. 

Imagine you are considering loaning money to someone, and they have applied for 125 credit cards in the last month or two. This is a warning sign. You would wonder what is going on in their life that has them scrambling for all the credit they can get.

This is the theory behind inquiries and their effect on your score. 

Mix of credit (10-15% of your FICO score)

FICO looks for a mix of credit cards and installment loans.

Installment loans are auto loans, mortgages, student loans, etc. It’s a loan set for a 5 year, 30-year term, whatever it may be.

Typically, FICO likes to see more installment loans than credit cards, or at least a mixture of the two.

Recently, we discussed a person who paid off their student loan and then their FICO score plummeted.

This particular person only had one installment loan – everything else was paid for.

So, when they paid their student loan, they no longer had the mix of credit that FICO prefers. 

We need to use these categories as a framework for determining how to help our credit score. 

We may not agree with or like how this works, but this is the business FICO is in. This is the model that they use and we should consider their methods when making decisions to improve our credit. 

  • How’s my payment history?
  • Am I maxed out on my credit limits? Do I have 95% of my credit available?
  • How old is my debt?
  • Am I frequently applying for credit in many different places?
  • What is my mix of credit cards vs. installment loans? How do these fit together?

All of these factors go into determining your FICO score.

We don’t know the exact formulas used by FICO because they are closely guarded. However, we have enough information to determine how greatly each of these factors affects our overall score.

The information on your credit report can affect major areas of your life. Be sure to check your reports regularly to make sure your reports are 100% accurate.

Currently, through April 2021, you can pull your credit reports every week for free

If there are errors in your report, take action by disputing them

If the bureaus refuse to correct or delete legitimate errors on your report, then sue them

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Thanks and have a great day!


John Watts

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