Fair Isaac's site says that your score is based on data in several categories:

 payment history (35 percent of score);

amounts owed (30 percent);

length of credit history (15 percent);

new credit (10 percent) and types of credit in use (10 percent).

Within each category are criteria such as details on late payment, percentage of total credit line used on credit cards, how long it's been since you've opened a new account and so on.

Your credit score is determined by your credit history and factors such as your income level and age are not considered in determining your score.

Factors that improve your FICO Score (according to Fair Isaacs)

Paying on Time

No evidence of seriously delinquent behavior (60 days past due or greater) seriously boosts your score. Approximately 27% of U.S. population has evidence of serious delinquency information being reported on their credit file.

Your FICO score is affected when your credit bureau report shows one or more serious delinquencies (missed payments) on your credit accounts. Studies reveal that consumers with previous late payments are much more likely to pay late in the future.

Making payments on time is one of the most important aspects of your credit management behavior that is evaluated by the FICO score. Continuing to meet all your credit obligations as agreed will reflect positively on your credit score.

Long Credit History

Old, established credit obligations as well as your newest credit accounts opened say, 6 months ago, impact your credit score. The majority of U.S. consumers have a relatively long credit history - with the average age of their most established credit account being 14 to 15 years. In addition, the average time since the most recent account opening is 20 months ago.

This reason is based on the age of the accounts on your credit bureau report (the age of the oldest account, the average age of accounts, or both). Research shows that consumers with longer credit histories have better repayment risk than those with shorter credit histories. Also, consumers who frequently open new accounts have greater repayment risk than those who don't. Avoiding a sudden ramp-up of new credit openings will help you to continue receiving positive points for this area of consideration by the FICO score.

The truth about closing Old Accounts

Old, paid-off accounts may increase your credit score if kept open
According to Fair Isaac & Co., one of the leading credit scorers. "Closing accounts can never help your score, and often it can hurt."

This is true for two reasons:

1. Recall that the more space between total credit card balances and total credit limit availability (your utilization ratio), the better your credit score.

Closing an old unused account decreases your available credit limits and shrinks the space between total credit card balances and total credit limit availability. This in turn lowers you credit score.

2. Lenders like to see a long history of credit use, especially where it has been responsibly managed. Closing your oldest unused account shortens your credit history on paper. Lenders don’t like short credit histories because statistically, the shorter a person’s credit history, the more likely they are to not pay on time. They are considered "newbies" in the credit game and therefore, according to lenders, they may not act as responsibly as someone with a longer, established credit history.

If you’re about to apply for new credit for a mortgage or a new car , leave your old accounts open. Your score will benefit.

Factors that decrease your FICO SCORE

Missed Payments

One, yes, just one account, that shows evidence of missed payments in the past can cause your FICO score to lower. According to Fair Isaacs, the majority of U.S. consumers pay their credit obligations as agreed and are never late. For example, over 68% of the U.S. population did not miss a single credit payment in the recent past.

Research reveals that consumers with previous late payments are much more likely to pay late in the future. The score evaluates late payment behavior in a variety of ways:

First, how many late payments appear on the credit record.

Second, how late they were.

Third, how recently they occurred.

These factors can interact with each other. For example, a payment that was 90 days late represents greater risk than a payment that was 30 days late, if they occurred around the same time. However, if it occurred much farther in the past, it may actually represent less risk. Even a 30 day late payment represents much greater risk than a spotless payment history.

There is no "quick fix" to raise your score if the late payment on your credit report is valid. In order to improve your credit rating over time, it's important to pay all bills when they're due. The longer you do so, the better the score. If you have late payments, get caught up on them and do your best to stay current. As time passes, the importance of these previous late payments will gradually lessen and the score will increase - as long as you make your payments on time on all your credit obligations, and use your available credit responsibly.

 

Amount owed on credit cards is too high

Let’s imagine, for example, you have around $35,00.00 in credit card debt. According to Fair Isaac, comparatively, the national average of total amount owed on non-mortgage related credit obligations by U.S. consumers is around $11,000. Therefore, to improve your credit score, keep total credit card balances under $11,000. (Further, no individual card should carry a balance more than 30% of the available credit limit.)

The score measures how much you owe on the accounts (revolving and installment) that are listed on your credit report. Consumers owing larger amounts on their credit accounts have greater future repayment risk than those who owe less. (For credit cards, the total outstanding balance on your last statement is generally the amount that will show in your credit report. Note that even if you pay off your credit cards in full each and every month, your credit report may show the last billing statement balance on those accounts.) Paying off your debts and maintaining low balances will help to improve your credit score. Consolidating or moving your debt around from one account to another will usually not raise your score, since the same amount is still owed.

Number of credit obligations

You should also note that the average American consumer has typically 11 credit obligations. These vary in type, but typically, four are installment loans; i.e., mortgage, car note, student loan, or other large purchase contract. The remaining credit obligations are department store cards, bank credit cards and/or gas cards. To better your FICO credit score, try to stay below the average of 11 credit obligations. Having too many credit obligations negatively impacts your FICO score. The more credit obligations you have over the national average, the more overextended you look to lenders. This makes you look like more of a credit risk.

Available Credit on your credit cards

The typical consumer has access to a little over $12,000 on all credit cards combined. More than half of all people with credit cards are using less than 30% of their total credit card limit. Just over 1 in 8 are using 80% or more of their credit card limit.

Reducing your debt balances to below 30% of the available credit limit improves your credit score. Reducing your balances while maintaining active credit use makes you more appealing to prospective lenders and can help improve your credit score.

When should you transfer balances on a card to improve your credit? The simple answer is no individual card should carry a balance more than 30% of the available credit on the card. But simply transferring a card doesn’t change the total number of the balances or the total number of the credit availbility, the numbers used to calculate your utilization ratio. Therefore, paying down your debt improves your credit score. Transfering balances has little effect.

 

Credit-scoring models look at a number of factors when calculating your score, including the result of the following formula: The total amount of debt on credit cards and revolving accounts divided by the total amount of debt available on those accounts.

This is known as your utilization ratio.

This formula results in a fraction less than one. The lower the fraction the better. A score of one would mean your outstanding debt equals your available credit and you've maxed out your cards.