Understanding Your FICO Score
FICO is short for Fair Isaac Corporation. Though there doesnt seem to be anything fair about it, there is a method to the way in which your score is calculated. The first step in conquering your credit problems is understanding the way in which the credit world views you.
History – 35%
FICO looks at your payment history. Thirty-five percent of your credit score is based on whether you pay your bills and in a timely manner. Liens, judgement and delinquencies are all a result of not paying bills. They will play a bigger factor in your overall score. Likewise, being diligent in paying your bills will have the largest impact on boosting your score.
Length of Credit – 15%
How long you have had credit? Are you new to the credit game? Do you have a long history of receiving credit? How long have you maintained the credit accounts that you have? Fifteen percent of your score is based on this information. It would follow that you can’t possibly get a credit card today, pay the bill next month and expect a large jump in your FICO Score. It takes time.
Type of Credit – 10%
Take a look at your credit “portfolio”. Here is where ten percent of your score falls. Is it diverse? Do you have a good balance? Do you have a large amount of one type of credit extended to you. Three merchant accounts, retail accounts, a car loan, a home mortgage and student loans is a typical mix.
New Credit – 10%
The last step FICO takes is looking at what is now called your “New Credit”. This is the category where your inquiries would fall. Think about any new accounts you have opened recently and how many. How long has it been since you re-established your credit history after having a negative past.
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Debt – 30%
Next FICO will take a good look at how much you owe all your creditors. Even if you pay your bills on time every month but still have an enormous amount owed, this plays into 30% of your FICO score. Obviously, the more you owe, the lower your score will be.
