The credit score that is created by credit bureaus is complex and usually formulated by using a computer model by Fair, Isaac & Co. (FICO). Thus, many people refer to credit rating as a person’s FICO score. The actual formula is very complicated, but the following serves to highlight some of the factors that the computer program takes into consideration along with how much emphasis is put on each factor.

Payment History

FICO take into account a person’s bills that have been paid late. A late payment affects a person’s score negatively with more recent information having more effect than more historical. For example, a late payment five years ago does not count as much against a person’s score as a late payment only a month earlier. It is estimated that a person’s payment history makes up 35 percent of what the computer model takes into consideration when formulation a credit rating.

Outstanding Debt

The amount of debt that a person is in negatively affects a credit rating as well. Credit cards that are maxed out hurt a person’s credit rating. However, it is better to have numerous cards with low balances than one card with a high balance. Experts estimate that outstanding debt is weighted around 30 percent by FICO as it determines a credit rating.

Length of Credit History

The more information that a credit bureau has to rely on, the better. Therefore, people who have had accounts for longer periods of time and have made payments on time receive higher scores than those who are just opening accounts. This factor plays an estimated 15 percent role in formulating a person’s credit rating.

Recent Opening of Accounts

A person who has applied for numerous new accounts very recently is tagged as suspect and may receive a lower rating due to these abnormal activities. This factor accounts for approximately10 percent of the FICO formula.

Types of Credit

Loans from reputable sources increase a person’s score. Loans from finance companies generally help to improve a person’s score. It is estimated that this factor accounts for the last 10 percent in the FICO computer model.