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What does your lender actually care about? Why these five factors are the best measure of credit risk

Focusing on these factors can improve your score


FICO®️ focuses on certain key factors when determining your credit score. Understanding them can be key to boosting your rating.

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If you’re looking for ways to manage your credit score, you may have been confused by baseless claims that lenders might assess your credit based on non-traditional data, such as your web browsing history and even social media.

But rest assured; what lenders really care about when they check your FICO® Score isn’t your social media footprint. It’s whether you’re going to pay back your bills on time. And when it comes to that, they consider the following factors to determine whether you’re a reliable borrower.

The five factors in your FICO® Scores

To understand how lenders assess your credit risk, it helps to understand the factors that make up your FICO® Scores. Knowing how these factors work can also help you focus on how to improve your scores over time.

“The most important thing is to understand what’s impacting your score the most. And if you focus on the things that really impact your score, that’s where you can really see results,” says Gerri Detweiler, education director with Nav, a business lending website. “You and I could go into Target today and both open a brand-new Target RedCard account, and the impact on our credit scores would likely be different because of everything else in our reported credit history.”

Payment history – 35% of a FICO® Score

The single most important factor in your credit report is how consistently you’ve paid your bills on time over the years.

“Past behavior is predictive of future behavior. My wife can tell you what I’m going to do next Thursday at three o’clock. I don’t know yet. But she would, because she knows the way I behave, because we’re predictable,” says Rod Griffin, senior director of Consumer Education at Experian.

“And so, when we’re looking at the way people have managed debts in the past, it’s predictive of the way they’re likely to manage credit in the future. That’s what’s in your credit report.”

Amounts owed – 30% of a FICO® Score

The second most important factor is how much you owe, especially relative to your credit limits. This is an idea known as your credit utilization ratio, and it’s highly predictive of how you manage your debt.

“If a person has very high balances as compared to their credit limits, it’s a strong indicator of risk,” says Griffin. “And just logically, the more debt you owe, the harder it can become to repay that debt if you have any problems.”

Length of credit history – 15% of a FICO® Score

“If you’re just beginning your credit journey and you have a very short credit history, there’s not a lot there to base a decision on,” says Griffin. “And so it’s kind of like a first date. ‘Seems like a nice person, but I need to get to know them better.'”

That’s why lenders consider the average age of your accounts. If you’ve been managing your credit for three decades, then you have more experience paying your bills than someone who’s brand new.

Credit mix – 10% of a FICO® Score

Another good predictive factor is whether you can handle multiple types of debt. These are generally organized into two buckets: revolving credit, like credit cards, and installment loans, like mortgages and car loans. Sometimes, people may have one type of credit but not the other.

“In my experience, it’s [often] young people who don’t want credit cards so they use a debit card, but they have student loans. So all they have is maybe that installment account on their credit history,” says Detweiler. “Or, conversely, older people who have paid off their house and their car and they just use a couple of credit cards.”

New credit – 10% of a FICO® Score

You may have heard that recent credit applications can factor into your credit score. That’s true, but that’s not the only thing.

“It’s not just the inquiries. It’s also looking at your recently opened credit – how one is effectively managing that newly reported credit,” says Griffin.

Alternative data for your credit score

FICO and Experian have been frontrunners in finding ways to add alternative data to your credit reports and make credit more accessible for the average American. But even then, the companies are very careful about what alternative data they use.

“We have a six-point test to make sure any credit score we develop that looks at alternative data meets these requirements,” says Tommy Lee, senior director of Scores and Analytics at FICO.

Those six points are:

  • Accuracy: Can the data be manipulated?
  • Scope and consistency: Does it collect information on most people?
  • Regulatory compliance: Does it comply with existing financial regulations?
  • Depth of information: Does it include both positive and negative information?
  • Predictiveness: Does it predict how well someone will pay their bills?
  • Orthogonality: Does it shed new light on how well someone will pay their bills?

Thanks to this system, alternative credit scoring models like UltraFICO can look at information such as how well you manage your bank account and allow it to weigh in on your credit score.

What affects my credit score the most?

There’s been much talk lately about new types of data that can be used to create a credit score. Even the Netflix show Black Mirror showed an eerie future where social media is used as a credit score.

Experts agree that you probably don’t need to fear anything like that anytime soon. The five factors of a FICO® Score are here to stay, with payment history being the most influential one.

“Ever since FICO® Scores were created over 30 years ago, these five categories have consistently appeared as the most important to predict future repayment behavior. And the relative importance of each category has been consistent over time,” says Lee.

Bottom line

You might see flashy headlines in the news about how credit score calculating will be changing, but the reality is that won’t happen anytime soon. The general basics are here to stay: Pay your bills on time, keep your balances low, and don’t apply for credit you don’t need.

If you can do those things consistently, you’ll be able to show your lender that you’re a reliable borrower. Fortunately, that’s exactly what your FICO® Scores already measure.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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