How does Fico work?

[Anonymous]

850 is the Cap of FICO scores

MyFico reflects the score breakdown:

Payment History = 35% - Max 297.5 points

Amount of Debt = 30% - Max 255 points

Length of Credit History = 15% - Max 127.5 points

Credit Mix = 10% - Max 85 points

New Credit = 10% - Max 85 points

If payment history has no derogatory notes – it should count for almost 300 points, right?

High achievers typically carry less than 6% revolving and 39% installment - possibly this is how to garner the 255 points. Perhaps someone can shed light on the weight of: revolving vs installment. In the forums a lot of consideration is put into CC utilization – I wonder how much installments effect the score as they do not fluctuate at the same pace.

Length of history. High achiever, Oldest Account 25+ years with an AAoA of 11+ - I would assume a sliding/weighted scale with the pinnacle being 11 years, maybe 90% at 8 years, 80% at 4 years and 50% at 2 years?

Credit Mix – I have read extensive, conflicting points of view. In the end, my view is: 3 revolving bank cards, store cards if you use them and 2 installment loans.

New Credit – Each inquiry will impact, as well as the original cost of a new line but as they age will grow they will sustain the AAoA. The 10% (85 points) appears slight until multiple categories are impacted. I have not put much time into this and I am certain someone here can shed much more light into the subject but it appears at least 5 points for the first and can move up to 50% for 10+

In order to achieve the elusive 850 – you need to get at least 2-5 bank cards, keep the balance below 6%, have a couple of installment loans that maintain below 39% to principal, don’t miss any payments ever or apply for new credit and ride it out for 11 years or so?

[NRB525]

You have several statements in there that are spot on, and as long as you stick with generalizations, yes, those are "accurate".

Where you are getting off the trail is putting specific percentages to the 850 calculation. It isn't that simple.

If you have no negatives and are pretty much new to credit, the score should be somewhere near 700. That's kind of the gimme score level.

If one starts missing payments, getting charge offs, BK or other baddies, those drive the score down, until those age off or are cleaned off the file, to allow it to rebound to nearer 700.

New Credit, you have that as 10% = 85 points. If one takes on new credit, that's just a negative in the form of HP INQ or "New Accounts" that have to age something like 2 years to be neutral again.

Amount of Debt, again, something of a negative as that increases. So you get more points for less debt.

Credit Mix, yes that is a marginal influence, to raise the score within a defined range, depending on....

Payment History and Length of Credit History (with no negatives). This combination is the end all and be all of credit scoring. This is your anchor to all other "noise factors" above. Pay on time, pay always on time, and the other stuff kind of tags along for the ride. Miss a payment? Go back to go and do not collect a good score.

To get an 800+ score, just always pay on time ( a decade is a good start ) get around 3 revolving credit products, maybe an installment loan or mortgage, keep the debt / borrowing under control, and did I say always pay on time? yeah, always pay on time. Then the score will take care of itself.

[Anonymous]

I agree. Pay on time, pay on time, pay on time... The weight placed on payment history is compelling and takes precedence. The debt you incur is also significant and I do not beleive there is enough emphasis for the unititated (like me) placed on installment loans. I lost over 30 points for paying off an auto loan recently. I have a very thin file and somewhat old school that believes (beleived) in paying cash for everything. I had a collection placed on my file that was not mine - disputed with the CFPB, won ,and currently waiting for the score update - I am guessing around 100 points as my file is thin and my AAoA is long. My post is more for the mathmeticians, theoratical minded and those trying to break into the 760 plus range - plus the "newbies" trying to understand all the pieces. I personally dont see the glory in staying above 800, nor do I seek perfection in this application. Perhaps that philosophy will change as I get closer?

You are certainly credit savvy NRB. It is the perephials "noise factors" I think that take you from good to great or at least good to very good. Pay on time, keep revolving below 6-9% and you shold maintain around 700+, if you add a solid mix (revolving/installment/charge), be careful in obtaining new potential debt and maintain the cards that got you there - then you can "join the ranks"

We are all in this game and on this site for our own cause. For me, it is not to acquire $1M in credit but to be able to walk into any institution and obtain the best rate. Hopefully through your knowledge and the other enlightened forum gurus, these post will get more people to thier end goal.

[NRB525]

Yep, we are all here to learn.

For me, there is a large amount of Noise from the number of cards I have reporting, as well as the balances of around $25k reporting, and a series of many new credit cards in the last year. Noise is usually a bad thing in credit, as it is for me. But I can live with 760-770 for now.

You are correct, if one wants to go to 850, then the Payment History gets some of the way there, but then the "noise" factors need to be optimized to minimize their negative, ensure things like mix are optimized, and be patient.

Good luck!

[elim]

FICO's Range starts at 300 (not 0),  therefore there is only a 550 point range which will make 10% 55 points (not 85).

edit:  350 300

[Anonymous]

Well, one of the main reasons for coming here was to get an explanation of my FICO scores.  I haven't applied for new credit in a decade, but needed a new car, with my last credit application being my last car!

Prior to applying, I subscribed here to discover (with shock) that my scores ranged between 737 to 754 (TU to Experian respectively) and that's with carrying 80% credit card utilization for a few years ($27k in cc debt over two cards)!  I assumed it would be lower based on my utilization, but it surprised the heck out of me.  Perfect payment history, though.  I just consildated that yesterday as a matter of fact, so I'm curious what my score will do when those two revolvers are wiped clean.

The MYFICO simulator, prior to me taking out the car loan and consolidation loan, said my score would go to 830 if I paid off roughly $22k of that debt. So I'm curious what the new calculus will be with those revolvers gone, but new car and installment debt.  I'll definitely report back once all of this stuff hits the books, so to speak.

Based on what I've seen here so far, I take it my situation is rather rare, so there you have it. No one was able to expain my scenario.

[Thomas_Thumb]

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@Anonymous wrote:

850 is the Cap of FICO scores

MyFico reflects the score breakdown:

Payment History = 35% - Max 297.5 points

Amount of Debt = 30% - Max 255 points

Length of Credit History = 15% - Max 127.5 points

Credit Mix = 10% - Max 85 points

New Credit = 10% - Max 85 points

In order to achieve the elusive 850 – you need to get at least 2-5 bank cards, keep the balance below 6%, have a couple of installment loans that maintain below 39% to principal, don’t miss any payments ever or apply for new credit and ride it out for 11 years or so?

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The breakdown you list is the standard FICO communication for the masses. I view it as a generalization. (also as Elim noted total range is 550 points and this is sub divided further by scorecard)..

Credit scoring is not quite as you describe. A profile is assigned to one of 12 score cards. The credit score range within respective score cards is not the full range and factors are asigned different weights depending on the profile.

Some points regarding your suggestions on a 850 score:

1) You do not need 2 installment loans/mortgages on file nor do you need balance to loan below 39%.

 - I have a single mortgage on file (no other installment loans) and balance was slightly above 50% when Discover 1st reported my Fico 8 score. It was 850.

 - One poster reported a Fico 8 850 with no open or closed installment loans on file (that is a true outlier - IMO)

2) It does appear that an AAoA of 8 years or more may be needed

 - A few posters have reported 850 scores with youngest account between 1 year and 2 years of age.

3) It appears that 3 CCs minimum may be needed but one could be a charge card as opposed to a revolver (AMEX)

4) More than one hard inquiry less than 12 months old (with the same CRA) may inhibit ability to reach 850 with that CRA - unless they are treated as one such as with mortgage or auto loan shopping. [It appears that a HP from a credit union could be categorized differently as well].

5) Aggregate utilization across all cards less than 9% appears necessary. However, utilization on a particular card could be upwards of 50% as long as AG UT is maintaained in range.

[Anonymous]

Mr. Thumb, Thank you very much for the insightful response. A 12 score card variable? That seems excessive but I imagine necessary to keep us from knowing too much. How did you come to that understanding? My credit curiosity is piqued and I want to learn much more. I have built a variety of spreadsheets that align with my personal credit swings and to date, they have proven somewhat accurate but I am in my own bubbble. I copied my data above without the 300 point false bottom as Elim identified but what I am using to track does take this into consideration.

Congratulations on your 850 - it is impressive!

Does the oldest card held have bearing or is the AAoA is the impact factor? I am also curious if the installment loans are a huge part of the mix or is it weighted towards revolving? So many questions, sorry...

[Thomas_Thumb]

Here are a couple links that reference score cards for Fico. Score cards are also referenced in some books on credit.

https://www.transunion.com/docs/financialServices/FS_ScoresOverview.pdf

http://www.equifax.com/assets/USCIS/efx-00190_efx_fico.pdf

This topic has been discussed in detail on other threads.

[Anonymous]

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@Anonymous wrote:
 

Does the oldest card held have bearing or is the AAoA is the impact factor?

The factor you may be thinking of is not the oldest card but age of the oldest account.  "Age of oldest account" and AAoA (Average age of accounts) are both important factors (though they are different) within the "Age" category (15% of your score).  Closed and open accounts count equally toward age.

I am also curious if the installment loans are a huge part of the mix or is it weighted towards revolving? So many questions, sorry...

The "Credit Mix" category is 10% of your score.  A profile that has only revolving or only installment accounts (i.e. accounts of only one type) gets few points from this category. 

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