Have you ever wonder how are credit scores calculated?  While many banks and large financial companies create their own formulas to compute a consumer’s credit worthiness, the same basic principle is used by all financial institutions.

Credit scores are determined by various different types of data in your credit history.  Even though there are several factors that influence your score, the most significant one is your payment history.  So if you are or feel you will soon be behind on your payments, it is best to start a debt relief program as soon as possible.   Using the FICO score software, the major credit bureaus gather your credit information into five basic categories:

  • Payment History–This includes late or missed payments. Your payment history has a relevance of 35%, thus it is the most important factor affecting your credit.
  • Outstanding Debt–How much outstanding debt you have weights at 30%.
  • Credit History Length–The value of your credit longevity is 15%
  • Recent Credit has a 10% significance.
  • Types of Credit is also worth 10%.

Although each credit score uses data from all five categories, each credit history is calculated differently.  The percentage breakdown of each category is a general rule, but may be different from one person to the next.

It is difficult to anticipate how much weight to give any one particular factor of your credit history. Nevertheless you can be certain that each credit score uses information from all five categories.