Recently I was asked about  the main factors that determine a credit score.  Payment History (35%) and Amounts Owed (30%) are by far the most important factors, but if you only concentrate on these two portions of the credit scoring model, you're not maximizing your credit profile.

The Length of Your Credit History (15%) and The Types of Credit Used (10%) also play a role in your credit score.  Even though these factors aren't weighted as heavily, they could be the difference as to whether your score is below a 720 or above a 720, which is an important tier in terms of the interest rate for which you qualify. 

I can't tell you how many times my clients ask me whether they should close out older credit accounts that they no longer use.  My answer is always 'NO WAY'.  As a matter of fact I actually recommend that they use the accounts more often.  I can see it now, you're thinking, 'What kind of sound financial advice is this?'  'I'm being told to increase my debt by a trusted financial advisor?'  When I say use the accounts, I simply mean that that my clients make small purchases on these accounts every 3 to 6 months and pay the balances in full each month that they charge the account.  The credit scoring model does not take into account any line of credit or credit card that has had no activity in the last 6 months.  Because the scoring model looks favorably on accounts that have a long history of timely payments, you should never close mature credit accounts.  Use them responsibly every 3 to 6 months so that these accounts can maximize your credit score.

The second factor that I had mentioned earlier, Types of Credit, can be maximized by carrying the preferred mix of credit accounts as follows:  a mortgage loan, an auto loan, and 2-3 major credit cards.  It is okay to carry more mortgage and auto loans as long as they are paid timely.  Consumer debt such as unsecured loans used for appliances, home electronics etc. are okay as long as they are not over utilized.

A constant question I field day in and day out is "How many points will I lose from my FICO score if I... (enter your own example here)?" For years I've told people that credit scoring doesn't work in such a way that there is an exact number of points assigned to any one incident. It's based on scorecards, characteristics, variables, and weights... all things that are too complex for the average consumer to digest without significant context. The point is, one item doesn't equal any pre-determined number of points in your FICO score.

Having said that, an article was published on the MSN website that purports to disclose the amount of points that you will lose if you make certain credit report mistakes. The information from that article was picked up and misrepresented by a different writer and posted on Yahoo!'s homepage for several hours. It was titled "FICO Reveals How Common Credit Mistakes Affect Scores", which is not what FICO did. By 8:15 am the next day, I already had six calls or emails from reporters asking me about the data and the "points lost" information.

Once again, I'm left to clean up the mess caused by someone else. So, in an attempt to clarify the "points lost" chart floating around on the Internet, I called and spoke with Craig Watts from FICO. Craig is their Director of Public Affairs.

The hypothetical examples used for their score impact charts are just that: hypothetical. According to Watts, the different score scenarios "aren't meant to reflect every consumer experience" and that your own personal experience "could vary significantly." Basically, this turns "FICO Reveals How Common Credit Mistakes Affect Scores" into false advertising. Watts and I both agree that the ONLY way to determine the impact of changes on your FICO scores is to use their FICO Score Simulator tool that's within the myFICO website. The downside is that you'd have to buy a credit report from them. The upside is that the score simulations will actually use your credit data and not data belonging to hypothetical consumers. For the first time ever, I will disclose the amount of points I would lose based on a variety of score-damaging actions. I used my own personal FICO score report from myFICO and it just so happens that my score is 780. These score changes are based on my own credit files and thus are not speculative or hypothetical.