Two most Crucial Aspects of your Credit Score Calculation


Anybody who has purchased a car or a home knows the significance and importance of that 3 digit number called your credit score. Lenders believe your credit score is the most reliable indicator of the risk they will be taking if they elect to lend money to you. Potential employers and insurance companies frequently look up your credit score to determine any risk associated with hiring you or to determine the cost of your policy and premium prices.

Now, for a moment, pretend you were about let somebody borrow money from you. What would you consider to be the two most important aspects of an individual’s credit worthiness? You would probably want to know if the borrower had been late on any previous payments AND you would certainly want to know how much they currently owe!

So it should come as no surprise that 35% of your credit score calculation is based on the number of late payments you have made AND 30% of the credit score calculation depends on your TOTAL DEBT.

The Equifax FICO credit score report (costs me $14.95 per month to have access to my credit history and credit score at myFICO) you see below lists the four elements of your credit score that the FICO algorithm considers most important. First on the list is payment history, second is Amount of debt, Third is the length of your credit history(Newly opened lines of credit can hurt your FICO credit score until they are given time to age), and fourth is the overall amount of new credit you have. A lot of new credit can indicate to mortgage companies and lenders that you are biting off more than you can chew.

The short summary of this article is to NEVER ever be late on a payment. If you have to be late, do not be more than 30 days delinquent as experian, equifax, and transunion keep track of whether you have been 30,60,90, or 120 days late with any of your payments. Also keep your overall debt as low as possible!

How your FICO Credit Score is calculated

At the time of this writing, the average USA FICO credit score is 690.

Also will list some average FICO credit scores by state:

Texas : 669 ,  New Mexico: 676 ,  Arizona: 683 ,  California: 693 , New York: 702 ,

Florida: 675 ,  Nebraska: 713 ,  Pennsylvania: 706 ,  DC: 683 ,  North Dakota: 720 ,

Illinois: 696 ,  Missouri: 689 ,  Georgia: 663 ,  Ohio: 694 ,  Alaska: 695




5 comments on “Two most Crucial Aspects of your Credit Score CalculationAdd yours →

  1. The following Question and Answer session published by the Money Coach does a great job of explaining the correct time of month to pay down your credit card balances AND also when most credit card companies actually report your credit history to Experian, Equifax, and Transunion(the big 3 credit bureaus) . The industry standard appears to be for credit card companies to report whatever your debt is at the time the statements are issued which is NOT the same as your outstanding balance on the payment due date:

    Q: “I have a Discover card that is used for mostly all household expenses. I have had this card since 1985 and have been paying on time and I have an agreed status with the card, meaning ‘paid as agreed. ‘I normally pay off the full balance on the Discover card after the statement cycle runs, but weeks before the payment due date. From a credit score perspective, is it better to pay off the full balance before the statement cycle ends, so that the credit card balance that gets reported to the credit bureaus reflects a zero balance?”
    A: The answer to that question is, yes, it is better to pay off your credit cards before the statement cycle ends, because you are absolutely correct that that zero balance is what will ultimately get reported to the credit bureaus. And as you likely know, 30 percent of your credit score is based on something called your “credit utilization rate,” meaning how much credit card debt have you charged versus how much credit you have available.

  2. The credit karma web site does a great job of explaining why there can be such big differences between your credit scores as calculated by experian,equifax, and transunion. A widespread practice is for the lender to use your middle score as the credit score that counts with regards to determining your interest rate.

  3. One of the most common incentives for using your credit cards is a cash-back as well as rebate supply. Generally, you’ll receive 1-5% back for various purchases. Depending on the credit cards, you may get 1% back on most purchases, and 5% in return on purchases made going to convenience stores, gas stations, grocery stores and ‘member merchants’.
    All of these incentives, of course , are designed to induce cardholder to run up huge balances so credit card company can collect larger interest payments.

    1. Lindsay Konsko writing for nerdwallet wrote nice article about Chase Slate credit card with its new chip and free FICO score. They sent us two cards, but we will cut them up and continue with our 5-3-1 master card. If Slate has 2% on all purchases, we would go with them, but til then their cards get sliced and diced winding up in trash can. Brutal competition amongst all credit card companies.

  4. Gabriel Vasile can direct you to a ton of relevant content with respect to credit score management and other dos and don’ts regarding your finance. Vasile, former heavy equipment operator, is now president of Romgroup a limited liability corporation. His presence in countless Google circles keeps him well informed.

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