The 5 Parts to Your Credit Score

I am truly amazed—and a little scared, frankly—by this fact: It is 2014 and not everybody knows what a FICO score is. In this day and age, if you don’t understand FICO, you simply don’t understand your money.

So here we go. FICO stands for Fair Isaac Corp., the company that over 50 years ago created what’s commonly known as the credit score. A credit score—a FICO score—is a three-digit number that determines the interest rates you will pay on credit cards, a car loan, a mortgage or just about any other debt you incur. A FICO score will determine if a landlord will rent to you. It may determine if an employer will hire you. It determines if a telephone company will give you a phone, and it even determines what your car insurance premium happens to be.

These scores run from 300 to 850. Your goal should be 760 or above. Anything under 500, and you’re in trouble. Got it?

OK. Here’s the five-part formula that makes up your score along with some thoughts on keeping it as high as  possible.

1. On-time payments. This is the most important credit commandment to follow, making up 35 percent of your score—the largest portion. It’s simple, guys: Don’t buy things if you can’t afford them.

2. Amount owed. It’s not about the total amount of outstanding debt you have, but about how much you owe compared to how much you have been authorized to borrow. It’s a debt-to-credit ratio, and it counts for 30 percent of your score. The more credit flexibility you have, the better.

3. Length of credit history. How long have you had your credit cards or other ongoing debts? This accounts for 15 percent of your score. That’s why it’s important to think really hard before you close a card you’ve had for a long time, because that track record is an important part of your credit reputation.

4. Mix of credit. This portion, worth 10 percent of your score, seeks to determine whether you’re responsible in all types of situations. Do you have a car loan? Student loans? A mortgage? Credit cards?

5. Applications for new credit. Making an unusual amount of these in a relatively short period of time is a red flag, counting 10 percent. The formula isn’t kind to people who go crazy and open a lot of new lines of credit, then suddenly charge them to the hilt.

Nothing is more important in your finances than your FICO score. It is as important as your SAT score if you’re trying to get into college. Your score will open or close countless doors for you. If you don’t already know it, visit to learn how to request your score free.

You need to know it. And you need to protect it.

Is your mind on finances now? Discover ways to save so you can prosper financially—starting now.


Jessica Krampe is the digital managing editor for A graduate of the Missouri School of Journalism, Jessica has worked for news, entertainment, business and lifestyle publications. Outside of the daily grind, she enjoys happy hours, live music and traveling.

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