How To Build On Your Credit Score, The Right Way


Dear Kim,

I was hoping that you could help me. I am very confused about how the FICO score is calculated. I am trying to rebuild my credit and I want to make sure that I am focusing on the right areas. Could you please explain how the score is broken down?

Thank you,


Dear Melanie,

Credit scores were designed to evaluate the potential risk posed by lending money to consumers. Simply put, the score helps lenders determine the likelihood someone will pay back a debt. The FICO score is the credit scoring model developed by the Fair Isaac Company in 1989. The three major credit bureaus: Equifax, Experian and Trans Union, supply information to FICO, and they calculate that information into a numerical score. Your score may differ slightly between each of the bureaus, but should never be drastically different.

There are five factors considered when calculating the score, and each comes with varying weight:

Payment History: Payment history makes up the largest component of the FICO score at 35%. This includes late payments, missed payments and paid as agreed. A series of late payments or missed payments can have a large negative impact on your score. Conversely, timely payments (paid as agreed) can help improve your FICO score.  Paying your bills on time is a great start to building a solid credit score.

Amounts Owed: The credit utilization ratio, also known as the amount owed, makes up 30% of the FICO score.  This ratio compares the amount of money that is owed on a debt versus the amount of available credit. FICO looks at each card or loan as an individual debt and then the entire debt as a whole. The key to this segment is to keep the ratio low. Do not charge credit cards up near their credit limits. You can figure out your ratio by dividing your credit card balance by your credit limit then multiplying it by 100. The rule of thumb is to keep that ratio well under 30.

Length of Credit History: Length of credit history makes up 15% of the credit score. In this piece, the amount of time that an account has been open, how long it has been since certain accounts have been used and how long certain accounts have been established are factored into the FICO score.

Read more: Understanding Your Credit Score

Types of Credit in Use: The type of debt you possess makes up 10% of the score. This area looks at the diversification of the debt, with a focus on revolving, installment and mortgage debt.

New Credit: New credit or hard credit inquiries makes up 10% and the final piece of the FICO score. This incorporates credit accounts that you have just opened and how often you have applied for new credit. The best way to avoid negatively affecting your score is to open credit only when necessary. When shopping for a large purchase such as a car, there is more flexibility.  All credit inquiries for an auto loan in a 30 day period will reflect only 1 inquiry in the credit score. This should allow you to shop for the best deal without fear of impacting your credit. Acquiring your credit report through does not have an impact on the credit score, so please remember to obtain your credit reports once per year.

Read more: Why Do I Get Differing Credit Scores From Different Sources?

There are a number of different scoring models and companies that produce them. The most important thing to remember when trying to rebuild your credit is to make on time payments and not over indulge in credit. Please feel free to reach out to one of our Certified Consumer Credit Counselors at 1-800-992-4557 for an education session in which we can review your credit report and your score and provide you with individualized guidance.

Good Luck!


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Kim Cole is the Community Engagement Manager for Navicore Solutions. Kim provides financial education workshops and seminars to communities. Readers can submit general questions relating to personal finance, credit scoring, debt management, student loans, home finance or bankruptcy which may be highlighted in the next month's edition. All identifying information will be kept anonymous.

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