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Understanding Your Credit Score

Posted on June 24th, 2013

At first glance, credit scores can seem confusing and difficult to interpret. The commonly used FICO credit score, named after Fair Isaac Corporation, is based on a scale from 300 to 850 with the median FICO score falling in the 720-725 score range. But how are those scores calculated? FICO scores are comprised of five components: payment history, credit utilization, credit age, mix of credit and recent credit. The following are general guidelines for how each component is calculated and valued in an overall credit score.

Payment History (35%)

Payment History measures the timeliness in which various credit bills such as mortgages, credit card bills and auto loans are paid.

Bills paid on time can help improve credit score, while late bills can adversely affect credit score.

Credit Utilization (30%)

Credit utilization is the ratio of current debt to the prescribed limit of debt.

By limiting the amount of purchases paid with credit, the credit utilization ratio will drop, thus improving your score.  Additionally paying off debts will lower the ratio and improve credit score.

Credit History (15%)

Credit history measures how long an individual has been with a certain credit company.

Longer credit histories improve credit score. Longer histories show the reliability of customers who pay their credit bills.

Credit Mix (10%)

Credit mix is determined by looking at the four different types of credit used: installment, revolving, consumer finance and mortgage. When determining credit score a more diversified credit mix tends to help improve credit score.

Installment credits – Have a fixed number of payments (i.e. student or automotive loans)

Revolving credits – Do not have a set number of payments (i.e. credit cards)

Consumer finance credit – Nontraditional loans (i.e. microfinances, pawns, or moneylending)

Mortgage credit – Used whenever a loan is secured through real property and a mortgage note.

Recent Credit (10%)

Recent credit measures how frequently an individual has looked for credit over a specific amount of time.

Generally, aggressive searches for credit or “rate shopping” can hurt credit scores.


While there is a rough formula for how credit scores are calculated, keep in mind that each credit score is case specific.  For more information on credit scores or how to increase your credit score, please contact Skinner Law Firm LLC.