Fico Breakdown: How Your Credit Score Is Calculated

Unfortunately with credit reports the bad tends to outweigh the good. Mortgages and loans are determined by your fico score (credit score/rating) which is calculated based on the information on your credit report.

35% of your fico score is based on your payment history and the more recent a late or missed payment the more it hurts your credit score. Generally, missed/late payments (more than 30,60 and 90+ days past due) are reported to credit agencies and remain on your credit report(s) for a period of up to 7 years.

30% of your fico score is the current usage of credit, meaning how much on a current loan do you still owe and how much of your credit limit on your cards is used? If your balances are close to the limits it has a negative effect on your FICO score. Balances close to the limits make you appear risky to potential creditors.

15% of your fico score is the length of credit history- how long have you been using credit, 1 year, 10 years, the longer you've been reliably using credit the better. Accounts that have been open for long periods of time with good payment histories are invaluable.

10% of your fico score is based on your applications for new credit. Applying for too many new accounts is bad for your FICO score and it's a red flag to creditors. It's based on how many places have requested a credit report on you, so even if you apply for credit and don't get it then it still reflects negatively on you. New accounts include car loans, store credit cards, regular credit cards, etc... However keep in mind that only "hard inquiries" count against you. You requesting your own credit report is considered a "soft inquiry" and can be done an unlimited amount of times with no reflection on your credit report.

The last but not least 10% of your fico is based on how well you've been able to pay off different types of debt. Having a mix of different types of debt reflects well on you. Successfully managing various loans, from credit cards, mortgages, auto loans, reflects better on you than having all of one or two kinds of loans.

http://www.bankrate.com/ has a free fico score estimator. http://www.bankrate.com/msn/fico/calc.asp?lpid=BKRATE29 All you have to do is provide some basic information, no names and no account numbers, and they will give a pretty accurate estimate of where you’re fico score range falls.

It's in your own best interest to get your FICO score as high as possible before applying for a mortgage or any loan or credit for that matter because it's the key to securing the lowest available interest rate. You can then put all the money you're NOT paying in interest in a Roth IRA!