How Does The FICO (Fair Isaac Corporation) Score Work?

The FICO score evaluates five credit‑building behaviors, weighted approximately as follows: payment history 35%, amounts owed 30%, length of credit history 15%, new credit 10%, and credit mix 10%. Lenders use this composite to predict how reliably you'll repay future debts.

For example, a single 30‑day late payment can shave dozens of points because it hurts the 35 % payment‑history component. Carrying a balance that equals 40 % of your total credit limits raises the 30 % amounts‑owed factor, while maxing out one card can cause a larger drop than a modest utilization on several cards. Someone who opened their first credit card last year has a short‑history score, so the 15 % length‑of‑credit factor remains low. Adding three hard inquiries in a month inflates the 10 % new‑credit weight, and a borrower with only revolving accounts lacks the 10 % credit‑mix benefit that comes from having installment loans.

These nuances become clearer in the next section on '5 FICO factors and how much each counts.'

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• Payment history (≈35 %) - Lenders examine whether you've paid past debts on time; on‑time payments raise the FICO score, a single 30‑day miss can pull it down noticeably.
• Amounts owed (≈30 %) - This factor measures balances versus credit limits (credit utilization); keeping utilization below 30 % typically helps the FICO score.
• Length of credit history (≈15 %) - Older accounts, average age of all accounts, and time since the newest account opened all contribute; a longer track record generally boosts the FICO score.
• New credit (≈10 %) - Recent hard inquiries and newly opened accounts signal risk; opening several accounts in a short span usually lowers the FICO score.
• Credit mix (≈10 %) - Having a mix of installment and revolving accounts (auto loan, mortgage, credit card) shows you can handle different debt types; a balanced mix generally improves the FICO score.

Your FICO score can change from one credit bureau to another because each bureau stores its own version of your credit history, updates it on slightly different schedules, and may include or exclude certain accounts. For example, Equifax might have reported a paid‑off credit card two weeks earlier than TransUnion, so the payment‑history component (35% of the score) looks fresher on one report, typically resulting in a 5‑20‑point gap between bureau scores.

Different FICO scoring models also shift the weight of the five factors. FICO 8 still emphasizes payment history and amounts owed (35% and 30%), but FICO 9 reduces the impact of medical debt and gives a modest boost to newer credit‑mix considerations. FICO 10 introduces 'trended data,' giving recent spending patterns a small role, while FICO 10T tailors the formula for 'telemarketing‑friendly' industries.

Because each model recalculates the same five inputs with slightly altered percentages, the same bureau file can produce scores that differ by roughly 10‑30 points depending on which version a lender uses.

Industry‑specific FICO scores tailor the generic five‑factor formula (payment history ≈ 35 %, amounts owed ≈ 30 %, length of credit history ≈ 15 %, new credit ≈ 10 %, credit mix ≈ 10 %) to the data most predictive for a given loan type.

• Auto loans -  FICO Auto 2, 4, 5 are the most common. Lenders typically look for scores ≈ 660 to 720 for favorable rates; recent payments and the proportion of revolving debt to installment balances weigh slightly more than in the base model.
• Mortgages -  FICO 2, 4, 5, 9, 10 serve this market. Conventional lenders usually require ≈ 620 to 740, while government‑backed programs may accept ≈ 580. The mortgage models place extra emphasis on long‑term payment history and the mix of installment accounts.
• Credit cards -  FICO 8, 9, 10 dominate. Issuers often set cut‑offs around ≈ 650 to 800. These versions give slightly higher weight to credit‑mix and recent inquiries because revolving utilization is the primary risk driver.

These industry models pull the same five factors from the credit bureaus, but they adjust the weighting and the look‑back period to match the loan's risk profile. Knowing which version a lender uses helps you anticipate how a new auto loan, mortgage application, or credit‑card request will shift your overall FICO score, a point we'll explore in the next section on when credit actions appear on your score.

Credit actions become part of your FICO score as soon as the creditor sends a report, which typically occurs within the next 30‑45 days.

• On‑time payment: shows up in the next reporting cycle (≈30‑45 days) and helps the 35 % payment‑history factor.
• Missed or late payment: appears in the same window and immediately drags down the payment‑history weight.
• Balance changes (higher or lower): reported monthly, affect the 30 % amounts‑owed factor within ≈30 days.
• New credit account or hard inquiry: entered in the next 30‑days, influencing the 10 % new‑credit factor.
• Account closure: reflected in the following cycle, can shorten the 15 % length‑of‑credit‑history factor.
• Charge‑off or collection: usually reported after 30‑60 days, heavily penalizes the payment‑history component.

Lenders pull your FICO score at the instant you apply and use it to decide approval, interest rate, and credit limit; scores roughly 720 and above usually unlock the best rates, 660‑719 earn average terms, and below 660 often trigger higher rates or denial. They also weigh the five FICO factors - payment history (≈35 %), amounts owed (≈30 %), length of credit history (≈15 %), new credit (≈10 %), and credit mix (≈10 %) - to gauge risk beyond the raw number.

In auto financing, a score near 660 typically secures a lower APR, while mortgage lenders generally reserve the most favorable terms for scores around 740; credit‑card issuers often reserve premium rewards cards for those scoring 720 plus. Recent inquiries and debt‑to‑income ratios (the 'new credit' and 'amounts owed' factors) directly influence the credit limit they offer. For a deeper dive, see how lenders use credit scores.

A ten‑point rise in your FICO score typically trims about 0.1 % off a 30‑year mortgage, while a 50‑point jump generally cuts the rate by roughly half a percentage point.

1. Mortgage - Borrowers at 720 often qualify for ~3.75 % APR, whereas those at 670 see ~4.25 % APR. The 50‑point gap saves about $70 per month on a $250,000 loan, assuming a 30‑year term.
2. Auto loan - A driver with a 660 FICO score usually receives a 4 % rate on a 60‑month loan; at 610 the rate climbs to about 7 %. The 50‑point drop adds roughly $150 in total interest on a $20,000 loan.
3. Credit card - Card issuers tend to offer 15 % APR to users scoring 740, but the rate jumps to 18 % for scores around 700. A $5,000 balance therefore costs $75 more annually.

These examples illustrate why even modest score shifts matter across credit products. For a broader look at how lenders price rates by FICO band, see Bankrate's credit‑score impact guide.

• Pay down credit‑card balances so total utilization falls below 30 % (the 'amounts owed' factor, roughly 30 % of the score). Lower utilization usually shows up on your report within about 30 days.
• Bring any past‑due accounts current and, if possible, arrange a 'paid as agreed' status. Payment history makes up about 35 % of the FICO score; updates typically appear on the next monthly cycle.
• Request a credit‑limit increase or add a low‑balance secured card without a hard pull. Higher limits reduce utilization, quickly boosting the 'amounts owed' component.
• Dispute any inaccurate late‑payment, collection, or balance entry. Once verified, bureaus generally correct the record within 30 days, improving the payment‑history weight.
• Add a small, on‑time installment loan or become an authorized user on a well‑managed account. This diversifies the 10 % 'credit mix' factor and can be reflected on your score after the next reporting period.

Consistent, long‑term habits that protect all five FICO factors keep your score high. Paying every bill on time safeguards the 35 % payment‑history slice, while keeping credit‑card balances below 30 % of limits protects the 30 % amounts‑owed component. Retaining older accounts builds the 15 % length‑of‑history factor, limiting new inquiries preserves the 10 % new‑credit weight, and mixing revolving, installment and mortgage credit supports the final 10 % credit‑mix portion (official FICO factor weights).

Set up automatic payments, then use the card for a small recurring expense and pay it off each month; this yields a spotless payment record and a utilization rate that stays under 10 %. Resist the urge to open multiple cards in a short period; each hard pull can shave points for roughly 30 days, and the effect compounds if you chase new credit too often. Let your oldest accounts sit open - even if you don't use them - because closing them erodes average age and can raise utilization.

Review your credit reports at least once a year, dispute any inaccurate entries promptly, and freeze your file if you suspect identity theft. Maintaining a habit of monitoring ensures that errors don't linger long enough to dent the payment‑history or amounts‑owed factors, and it gives you time to plan major credit moves - such as a mortgage application - well before they appear on your report, setting the stage for the next section on common FICO‑damaging mistakes.

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• Miss a payment (even a $5 late fee); payment history carries about 35% weight, so a single delinquency can drop your FICO score by dozens of points.
• Let credit utilization climb above 30%; amounts owed represent roughly 30% of the score, and high balances signal risk to lenders.
• Open several new accounts within weeks; new credit accounts and hard inquiries affect the 10% new‑credit factor and can shave points quickly.
• Close a long‑standing card; length of credit history (about 15% of the score) shrinks, and you lose a piece of your credit mix.
• Ignore a small debt that later goes to collection; once in collections it hurts both payment history and amounts owed.
• Co‑sign a loan without checking the primary borrower; you become equally responsible, and any negative activity drags down your own FICO.
• Leave identity‑theft alerts unattended; fraudulent accounts stay on your report for up to seven years and can cripple the score.

Dispute credit‑report errors and recover from identity theft by securing your identity, gathering proof, and forcing the bureaus to correct the record.

1. Lock down the account - Call one of the three major bureaus to add a fraud alert (free and typically lasts one year). If you need stronger protection, place a credit freeze; it stops new accounts until you lift it. File an FTC Identity Theft Report and, when possible, a police report to create an official paper trail.
2. Collect the evidence - Pull your latest reports from Experian, Equifax, and TransUnion. Highlight every inaccurate line and attach supporting documents such as bank statements, payment receipts, or the police report.
3. Submit a dispute - Use each bureau's online portal or certified‑mail template. State the exact error, reference the supporting document, and request deletion or correction. Under the Fair Credit Reporting Act, bureaus generally have 30 days to investigate and must notify you of the outcome.
4. Review the results - When the bureaus close the investigation, obtain fresh copies of your reports. Verify that the disputed items are gone or corrected and that your FICO score reflects the change (payment history still counts about 35 %, amounts owed about 30 %).
5. Rebuild responsibly - After the cleanup, open a secured credit card or become an authorized user to re‑establish positive payment history. Keep utilization low and pay on time; these actions tie back to the '5 quick actions to raise your FICO this month' section and help the score recover faster.

For detailed guidance on filing a fraud alert, see the FTC's identity theft steps.

FICO score calculations on thin files rely heavily on the limited data they contain, so the payment history (35%) and amounts owed (30%) dominate the result. With only one or two accounts - often a single credit‑card or a small auto loan - there is little length of credit history (15%) or credit mix (10%) to boost the number, so scores typically sit in the 600‑660 range, though consistent on‑time payments can push them higher.

When a borrower has a mixed credit history, the credit mix factor finally matters; a blend of revolving cards and installment loans can add up to the full 10% weight, while a concentration in one type depresses that portion of the score. New accounts also influence the new credit weight (10%); opening several accounts quickly can cause a temporary dip.

For example, a person with a long‑standing mortgage, a car loan, and a few well‑managed credit cards usually sees a healthier FICO score than someone whose record consists solely of credit‑card balances. See the official FICO explanation of thin file scoring for more details.