I haven’t posted anything related to mortgages in a while so this week I decided to talk about the credit scoring model. First and foremost, FICO is the Fair Issac Corporation model. It’s used exclusively by Experian. The are five main categories of information that the FICO score evaluates:

Credit Payment History: 35%
At 35% Credit Payment History weighs the most. While events such as a bankruptcy, foreclosure or tax liens will have the greatest negative impact on your score, multiple and/or recent late payments have a tremendous impact as well.

Credit Balances: 30%
What is your credit balance to your credit limit? The Outstanding Credit Balance ratio has the second highest weight on your credit score. High balances on your credit cards can be viewed as a red flag since it’s an indication that you may be overextended. If you have multiple credit cards, you may want to spread the wealth to keep the credit balances to credit limit ratio low.

Credit History: 15%
Credit History is a reflection the length of time that you’ve had accounts open. You’re rewarded for keeping long term debt. Older credit accounts that have been used more frequently will have more weight than those that are newly opened or used with less frequency.

Credit Inquiries: 10%
Opening a new credit account doesn’t harm your credit score dramatically especially after you make the first payment. However, credit inquiries can negatively impact your score. Generating many credit inquiries exudes that you are trying to secure a large amount of credit or you are being turned down by lenders and have to apply elsewhere.

Credit Types: 10%
This percentage of your FICO score is based on your mix of credit. Do you have a good mix of credit cards, retail accounts, installment loans, finance company accounts or mortgage loans? It looks at the whole picture and totals how much of each type of account that you have.

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