The first thing the formula looks for is credit history with only positive information. The FICO calculation considers number of accounts, the age of the accounts, and the age of the youngest account.  If the credit report shows any kind of delinquency, the calculation looks for any type of public record such as a tax lien or bankruptcy. It then looks for the most severe delinquency if there is more than one on the file (i.e., a bankruptcy is worse than a judgment).

After the above information is accumulated and assessed by the FICO credit scoring system, the credit rating is then assigned to one of the ten scorecards. These are basic groups of other borrowers with similar borrowing characteristics, history and habits. For example, a borrower with two 30-day late payments will be scored against a population with similar minor delinquencies.
Scorecards 1-5:
 
1.   Those with public records or bankruptcy on their credit report
2.   For those with serious delinquencies other than bankruptcies (60, 90, 120 lates, collections, judgments, charge-offs repossessions, etc.).
3.   Those with only 1 credit account (very thin files)
4.   Those with only 2 credit accounts (thin files)
5.   Those with only 3 credit accounts.

Scorecards 6-10 must NOT have ANY serious delinquencies (the exact definition of “serious” is unknown):

6.   0-2 years oldest account
7.   2-5 years oldest account
8.   5-12 years oldest account
9.   12-19 years oldest account
10.   19+ years oldest account

Unfortunately, Fair Isaac keeps the exact details of how the scorecards are used to divide you into groups very secret and our researches could only locate 10 scorecards (there are actually 12 now with the release of FICO 08).

FICO claims that grouping people together according to their scorecards are suppose to enhance the predictability. Scorecards essentially allow the FICO formula to give different weight to the same information, and make credit scoring more fair. Essentially, you cannot score someone with flawless credit against someone that has terrible credit.

Different Groups, Different Standards
Scorecards are far from perfect. There have been tons of examples of people who have spent years rebuilding their credit only to have it get worse. These people hit the 7 year mark and any derogatory items are removed (derogatory information can only report for a set period of time). When these items were removed it actually hurt the person’s credit score. How can this happen? When the derogatory items were removed the person was transferred to another scorecard with higher standards. The reason the score dropped is because the person was probably at the top of the last scorecard group. Now that they are in the new group, with tougher standards, they are at the bottom of the new group. They will have to work their way up the new group.

How deleting a bankruptcy can hurt a credit score
Many credit repair business are shocked when they successful delete a bankruptcy or some other type of public record to learn that their customers’ credit score actually lowered. Once again, this is caused by the person being placed on a new, more stringent, scorecard. Now instead of being compared to other people with a bankruptcy, they are compared to people that don’t have one. And once again, they have to start out in the bottom of the scorecard group and work their way up. That is why it is so important for people who have a bankruptcy to start establishing new credit right away—so they won’t have any voids in their credit history.

Also, imagine losing points for doing absolutely nothing. This happens when someone’s credit history gets longer. Now instead of being compared with people who have had thin and young credit history, this person moves to a new scorecard and is now compared with more seasoned people. Here is an example FICO states on their website:

"You moved from one category of credit users to another as time passed. For example, you may have transitioned from the category '"consumers with a new credit history"' to the category '"consumers with a two- to five-year credit history."' As a result, your credit report is evaluated differently, causing a slight change in your score. The good news is that moving between categories like this usually offers you the potential to reach a higher FICO score in the future."
What they mean by the above statement is the person was moved from one scorecard to another. The person ranked well on the old scorecard and now on the new scorecard doesn’t score so great against people with 2-5 year credit histories. The good news is there is now more growth potential for the person.
FICO 08

To prevent the problem Fair Issac (FICO) announced their next credit formula divides people into more groups so the transition from one card to the next is not so dramatic. The number of scorecards are increasing from ten to twelve. The current FICO model uses 10 score cards. FICO 08 adds 2 more, now dividing the population into 12 segments (eight for people with good credit and four for people with bad credit.)

Another change is authorized user tradelines will no longer be included by Fair Isaac and will not impact the credit score. This change eliminates a credit repair tactic whereby consumers were being charged thousands of dollars to "rent" authorized user tradelines in an attempt to artificially improve FICO scores and defraud lenders.