Credit scores are calculated by mathematical models that use credit-report information to predict whether a consumer will repay borrowed money on time, according to the CFPB's credit-score explanation. There is no universal formula: the CFPB says scores can differ by scoring model, credit-bureau data, financial product and calculation date in its score overview. A score therefore reflects a particular model's reading of a credit report at a particular time. It is not a single, permanent rating attached to a person.
Table of Contents
- What information does FICO weigh?
- Why payments and balances matter most
- How account age, new credit and account types count
- Why two scores may not match
- What can consumers check and dispute?
What information does FICO weigh?
For the general population, FICO's factor breakdown groups credit-report information into five categories: These percentages describe the categories' general importance. FICO says their influence can vary by credit profile and as report information changes. A 10% category, for example, does not mean one action will raise or lower a score by 10%.
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- New credit: 10%
- Credit mix: 10%
Why payments and balances matter most
Payment history is the largest general FICO category. It examines whether past credit accounts were paid on time. Late payments, collections and other negative repayment information can lower a score.
Amounts owed includes the share of available revolving credit being used. Balances close to credit limits can hurt, although owing money does not automatically make someone a high-risk borrower. That distinction matters when comparing two consumers with equal debt. The model may view their balances differently if one is much closer to available credit limits.
How account age, new credit and account types count
Credit-history length considers the oldest and newest accounts, the average account age and how long particular accounts have been used. A longer history generally helps when it has been managed well. New-credit activity includes recently opened accounts and credit inquiries.
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Opening an account may appear in this category while also changing the age measures used elsewhere in the calculation. Credit mix refers to the reported types of accounts, including credit cards, installment loans and mortgages. The Federal Trade Commission identifies both new-credit activity and account variety as information scoring models consider.
Why two scores may not match
A lender may use a different scoring formula from the one a consumer sees elsewhere. The scores may also draw from different bureau reports or use models designed for different credit products.
Calculation dates matter because report information can change. When comparing scores, check the model, bureau data, intended product and date before assuming that a difference signals an error.
What can consumers check and dispute?
Credit-report errors can affect the history used to calculate a score. Consumers can protect themselves by reviewing their bureau reports for information they do not recognize or believe is inaccurate. The CFPB's credit-score guidance recommends contacting both the reporting company and the information furnisher about an inaccuracy.
- Identify the specific information that appears wrong.
- Dispute it with the credit-reporting company.
- Also dispute it with the company that furnished the information.
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