You may know what your credit score is, but do you know what goes into compiling that score? It might surprise you what items are the most heavily weighted in score compilation and what information is not even considered.        

First, let's review the definition of a credit score. It is a three-digit number, ranging from 300-850, that is calculated using historical information from a credit report. A credit score is used as a predicting barometer for how a person will pay future bills. When you make an application for credit, it is easier and quicker for the creditor or lender to use the three digit credit score to make a yes/no decision than by viewing a complete credit report.

It is important to note what is not in your credit score. Federal law prevents credit scores from being calculated on the basis of: your race, color, nationality, gender, and marital status, whether you receive public assistance and whether you've exercised your rights under the Equal Credit Opportunity Act or the Fair Credit Reporting Act.    

The most commonly used version of the credit score is the FICO score. It was developed by the Fair Isaac Company.  (Amaze all your friends by knowing that bit of trivia.) Please note that FICO, the company, is not itself a credit bureau nor does it collect credit report data. It is a compiler of your credit score based on data collected from major credit bureaus.  (The three major credit bureaus are: Equifax, Experian and TransUnion and are not the direct subject of our discussion.)  

The specific equation or equations or programs used to generate a credit score are complex and well-guarded secrets; however, different pieces of your credit history are given different weights, as shown below:         

• Payment history - 35%. The past is often the best predictor of the future. How did the person pay in the past? Delinquencies - recent and past - late payments, and bankruptcies affect this sector's part of the score.
• Debt level - 30%. Comparisons matter. "The amount of debt you have in comparison to your credit limits is known as credit utilization. The higher your credit utilization - the closer you are to your limits - the lower your credit score will be. Keep your credit card balances at about 30% of your credit limit or less." (1)
• Length of credit history - 15%. Long is good.  "Having a longer credit history is favorable because it gives more information about your spending habits. It's good to leave open the accounts that you've had for a long time." (2) 
• Inquiries - 10%. Too many is too much.  "Each time you make an application for credit, an inquiry is added to your credit report. Too many applications for credit can mean that you are taking on a lot of debt or that you are in some kind of financial trouble. While inquiries can remain on your credit report for two years, your credit score calculation only considers those made within a year." (3) 
• Mix of credit - 10%. Variety is the spice of life's credit reports.  "Having different kinds of accounts is favorable because it shows that you have experience managing a mix of credit. This isn't a significant factor in your credit score unless you don't have much other information on which to base your score. Open new accounts as you need them, not to simply have what seems like a better mix of credit." (4)

As a practice, FICO does not include the following items in your FICO score: your age, your salary or employer, amount of money in bank accounts, your address, whether you pay child support or alimony or are receiving credit counseling, your own requests for your credit report or "soft" requests for your credit report made by banks for promotional reasons and businesses with which you already have a relationship.   

How can you check your credit score?  The federal Fair Credit Reporting Act (FCRA) requires that U.S. consumers be entitled to a free credit report each year.  If consumers stay informed, they can fight identity theft and get fair treatment when applying for credit.   You can check your own credit report as many times as you want to and it will not affect your score by a single point as long as you go through a reputable source such as annualcreditreport.com.  Please remember that having a lender check your credit score for you registers as a "hard" inquiry and will affect your credit score negatively the same way a new application for credit would.  (5)

Please note, repeat, please note that only one web site is authorized to fill orders for the free annual credit report you are entitled to under law and that is annualcreditreport.com  or you can  call 1-877-322-8228 or go to ftc.gov/credit to download the necessary form. (Do not contact the three nationwide consumer reporting companies individually.) There are other "imposter" web sites that claim to offer "free" credit reports, scores or monitoring.  They are not part of the legally mandated free annual credit report program.  In some cases, the "free" report from these "imposters" comes with strings attached...eventually demanding you to pay a fee or buy a private subscription for other services. Be aware also that some "imposter" sites use terms and misspellings to trick you into collecting your personal information.  (6)

Finally, annualcreditreport.com and the nationwide consumer reporting companies will not send you an email asking for your personal information.  If you get an email, see a pop-up ad or get a phone call from someone claiming to be from annualcreditreport.com or any of the three nationwide consumer reporting companies, do not reply or click on any link in the messages.  It's probably a scam.  Forward any such  email to the

FTC (Federal Trade Commission) at spam@uce.gov. (7) 

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