Credit Score How Credit Works

How to Understand FICO Scoring Categories

Length of credit history

Now imagine that the person who comes to you has a long history of using credit cards and loans in super positive ways. With many years of on-time payments, satisfied accounts, and low debt, you would have faith that he’ll keep up this kind of behavior. The length of a person’s credit history is 15 percent of a FICO score.

Conversely, if the person has not used credit cards or loans in the past, or has only just started to use them, he’d be a mystery. Perhaps he’ll be a reliable customer but you really can’t gauge him properly. It shouldn’t take too long for you to get a sense of his abilities, though. A year or two of responsible credit use might be all that you need to make the right business decision.

Types of credit in use

Now consider an applicant who has had a history of managing a wide variety of credit products. Personal, student, home, and vehicle loans in addition to a few credit cards — all handled perfectly — would surely give you an extra boost of confidence in the person’s ability to handle money and credit. This category of a FICO score is 10 percent. It’s not nearly so important as payment history and credit utilization, but it’s nice to have as an added edge.


Lastly, think about the person who, even with a robust and positive pattern of using credit products, has been asking everyone in town for a loan. “Hey, can I borrow money from you? How about you?” It smells of desperation!

While friends and family members don’t send notices to the credit reporting agencies that the person has been hitting them up for cash, banks do. Each time a person submits an application for a credit card, loan, or credit line increase, the lender notifies the credit reporting agencies and a hard inquiry is placed on the person’s report. The more of these inquires in a short span of time, the more it raises a red flag to other lenders that something is amiss. For this reason, pursuit of new credit is a scoring factor. At 10 percent it’s not much, but if the person has little else on his reports that proves he’s a good credit risk, it will have a greater hit on his scores.

By switching perspective and looking at the situation through the lens of a lender, you will know why your own FICO scores are either high or low. So ask yourself this: based on what is on your credit reports, would you lend money to you? If you’d decline or hesitate, identify what would hold you back. Is it a poor payment pattern or an overabundance of outstanding debt? Are you too young or limited in the world of credit, or have you been too aggressive with applications? Whatever the case, you have the power to change your score by adjusting the way you use credit products.

About the author

Erica Sandberg

Erica Sandberg

Erica Sandberg is a freelance editor at large, reporter, and advice columnist covering all things fundamental finance. She’s been KRON-TV’s on-air money and credit expert for over 15 years, and has appeared on virtually every national news show, from Fox to CNN. She hosts Making it with Erica, a video program highlighting ways to live adventurously on any budget.


  • Interesting perspective on flipping leverage positions. My question is; is scoring done with the same mathematical model? Do banks, car loans and Mortgage companies look at credit the same way? And if they are, why are scores always different?

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