What goes into your credit score?

Figures holding magnifying glass over credit report

The FICO score is the gold standard of credit scores.

It's what 99% of lenders, from credit card companies to banks, use to predict how likely you are to miss a payment or default on a loan.

But right now, there are at least two versions in use.

In 2009, the Fair Isaac Corp. introduced the FICO 8, the fifth revision since 1989 of the secret formula that predicts how likely a consumer is to miss a payment or default on a loan.

Your FICO score is based on what banks, stores, utility companies and other creditors tell the three major credit-reporting agencies about how much you owe and how diligently you pay your bills.

Anyone who's ever had a credit card, auto loan or even an electric bill in their name has a credit history with Experian, TransUnion and Equifax. And if you have a credit history, you have a FICO score attached to your file.

The higher the score, the better your credit.

There isn't a huge difference between FICO 8 and earlier versions of the scoring model, the company says. About half of all consumers have a FICO 8 score that is no more than 20 points higher or lower than scores from previous versions.

FICO says more than 7,600 lenders are now using the FICO 8, although it's not the most widely used version and you won't know whether your lender is using it.

The FICO 8 is more forgiving on rare late payments, such as that one Gap credit card bill you missed last year, but is more punitive if you have credit cards close to their credit limits.

The FICO 8 revision also seeks to end the practice of illicit piggybacking where someone will become an authorized user on a stranger's credit account -- but never use that account -- in order to boost their own score.

While it's theoretically possible to earn a perfect 850, a score above 720 is usually good enough to qualify for the best rates on just about any loan.

But if your FICO score is below 620, you're in the dreaded subprime category where you'll be charged higher-than-average rates -- if you can get a loan at all.

Your score is calculated using 22 different variables from your credit history.

The most important factors are:

Payment history (35%). You want a long record of paying your bills on time with no missed payments. If you don't pay on time, the length of time payments are past due, the amount that's delinquent and the number of past-due items all affect your score.

How much of your available credit you've used (30%). The closer you are to your credit limit, the lower your score. FICO begins to penalize you anytime you borrow more than 50% of your available credit.

Length of credit history (15%). Having accounts open for a long time increases your credit score, although inactive accounts don't help as much as active ones. The score looks at how long you've had your oldest account as well as the average age of all your accounts.

New credit (10%). Opening a bunch of new accounts in a short period of time decreases your credit score and makes lenders nervous. Even credit report inquiries (when someone checks your credit history because you're trying to obtain credit) lower your score.

Thankfully, inquiries made by employers or lenders sending unsolicited offers don't affect your score. Neither do your requests for your own credit report. FICO also considers a flurry of inquiries from mortgage or auto loan lenders as a single request, so you aren't penalized for seeking multiple bids on a home loan or a vehicle.

Types of credit used (10%). Your score will be a little higher if you have a record of repaying a range of debts, such as credit cards, auto loans and mortgages.

Take special notice of one thing that is not used to calculate your FICO score -- how much money you make. It doesn't matter whether you earn $10,000 or $10 million a year. Income is not a factor.

Fair Isaac is pushing lenders toward using the FICO 8 because they believe it's a better predictor of risk. Right now, though, you can't buy your FICO 8. You can only buy the earlier generation score from MyFico.com.

You won't be able to see the new number until it becomes the one most used by lenders.

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