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How Your FICO Score Determined: Consumer's Guide

Colin GrubbOct 27, 2016

House, car, credit card, your FICO score is what creditors use to determine whether or not they are going to grant you credit…90% of of them to be exact. So what actually is your FICO score?

These days, there are a ton of online services offering free credit scores. However, these scores are “consumer” scores used for educational purposes and not the FICO scores lenders will actually see when making their decisions. Sometimes they are close, sometimes they are not.

You can obtain your true FICO score by going directly to Transunion, Experian, or Equifax and paying for it. Also, an increasing number of credit card providers like Citibank, Discover IT and, Chase Slate are offering free FICO scores to their customers.

The first thing to get out of the way is that FICO is its own company, which uses its own model and equations to analyze a given credit bureau’s report and generate a credit score.

FICO was originally called Fair, Isaac and Company, an analytics firm that was founded in 1956. The company rolled out a general-purpose method of analyzing credit reports and generating scores in 1989. The score is just a quick snapshot that lenders can purchase to get an accurate picture of your credit history.

Before FICO scores, prospective lenders would obtain a third-party credit report to analyze themselves. Before that, creditors would have to vet borrowers personally according to their own process.

FICO boils your credit score down to the following formula:


The single largest influence on your credit score is your payment history. Negative marks here can include:

  • Missed payments
  • Items in collection
  • Foreclosure
  • Bankruptcy

FICO is looking at the frequency, how recent they were, how many and how much. These negative marks can stay on your report for a while and generally can only be removed by time. If you manage to keep your activity positive these marks lessen in impact as they fade into the past.


In this category, your revolving credit (credit cards) tend to have a much higher impact on your score than your installment loans (auto, home, student, etc.)

Amounts owed can be further broken into two categories: overall utilization ratio, and utilization ratio by account.

Overall Utilization Ratio - This refers to how much you are using of your entire available credit. The total credit you have access to includes the accounts you are paying monthly, but might include accounts you paid off but no longer use and are still open.

So say for simplicity’s sake you have one $10,000 limit credit card maxed. Your utilization ratio would be a poor 100%. But when you check your credit report you find there is an old card that is still open that you paid off 10 years ago with the same $10,000 limit available. Your overall utilization is 50%.

You are shooting for an overall utilization ratio of 30% or less.

Although it is psychologically tempting and existentially satisfying to close credit cards you have paid off, this is why they tell you not to do so.

Utilization ratio by account - This is the exact same thing except on an account-by-account basis. The balances you are carrying by account are a sub factor that influences this overall part of the category. Keeping your accounts maxed or close to maxed is still going to have a negative impact regardless of how much credit you have access to as a whole. Once again, we’re shooting for 30% or less by account.


Simple, the longer your credit history the better. It gives creditors a wider view of your payment habits.


This look at your different types of accounts: installment, revolving, consumer finance, mortgage, etc. You will receive a better rating here if you’ve shown a history of managing various types of accounts.


This part of the score is influenced by how often you apply for credit.

When a credit grantor (someone checking your credit rating in order to grant you credit) looks at a particular bureaus report it is considered a “hard inquiry.” Hard inquiries stay on your file for that bureau for two years, and can affect your FICO score for one year. The reason for this is searching for multiple lines of credit can indicate higher risk.

Many entities can be asking to look at your credit report, but only those which you have specifically sought credit from will affect your score.

FICO usually catches it if you are experiencing multiple hard inquiries in a short space of time when loan shopping for a house or vehicle, and will not individually penalize you for every single pull.  

Any other inquiries by yourself or someone else for informational purposes are called “soft inquiries” and will not affect your FICO score.

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