A credit score is a complex mathematical model that evaluates many types of information in a credit file to determine your financial reliability or credit risk; that is, how likely you are to repay a loan and make your loan payments on time. Many factors influence your score, with the two most important being how you pay your debts and how much debt you owe. For example, late payments on loans, a past bankruptcy, debt collections or a court judgment ordering you to pay money as a result of a lawsuit will negatively affect your credit score.
According to the Fair Isaac Corporation that calculates the popular “FICO score”, the following factors (and weighting) determine your credit score.
• Payment History (35%) , which includes account payment information, bankruptcy or judgments, how long overdue payments are, amount past due, and the time since any adverse occurrences.
• Amounts Owed (30%) , which includes the amounts owed on accounts individually and totaled together as a whole, number of accounts with balances, proportion of credit line used and proportion of installment loan amounts still owed.
• Length of Credit History (15%) , which includes the time since you accounts have been open as well as the time since your accounts have been active.
• New Credit (10%) , which includes the number of and time since recently opened accounts and proportion to total accounts, number of and time since recent credit inquires, and the re-establishment of positive credit history following past payment problems.
• Types of Credit Used (10%) , which includes the number of various types of accounts, like credit cards, retail accounts, installment loans, mortgage, etc.
Credit scores change over time to accurately reflect your current financial behavior and length of credit history. Accurate negative information can be reported for 7 years, with the exceptions of bankruptcy (10 years), lawsuits or judgments (7 years or until the statue of limitations runs out, whichever is longer), or information based on an application for a job with a salary of more than $20,000 (no time limitation). Since your credit score is a “snapshot”, it’s unlikely that your credit score a month ago is the same as it is today.
In order to ensure that credit reports are fair for everyone, certain factors are not included in your score. To name just a few, race, religion, national origin, sex, age, salary, and any other information not proven to be predictive of future credit performance are never included in calculating your score.