Today’s posting will give you the FICO credit score breakdown. Knowing what to do and the areas to focus on when rebuilding your credit or if you’re looking to increase your credit scores can be the difference between success and failure.
The term credit score usually refers to your FICO score, a number based on a formula developed by the Fair Isaac Corporation, which looks at a summary of all your credit accounts and payment history. Your FICO (credit) score determines your access to and cost of credit. Most lenders use it as the main basis for loan or credit approvals, so the higher the better and the lower the more problems. FICO score ranges from 300-850, and Fair Isaac calculates them for each of the three big credit reporting agencies: Transunion, Equifax, and Experian.
Here’s how your score is determined:
- 35% is determined by your payment history. Do you regularly pay your bills on time to any creditor that submits your information to the credit bureau? Overdue medical bills, utility bills and other bills may appear here.
- 30% is based on the amounts you owe each of your creditors, and how that compares with the total credit available to you or the total loan amount you took out (debt to equity ratio). If you’re maxing out your credit cards, your score may suffer.
- 15% is based on the length of your credit history, both how long you’ve had each account and how long it’s been since you had any activity on those accounts. The fewer and older the accounts, the better (assuming you’ve made timely payments).
- 10% is based on how many accounts you’ve recently opened compared with the total number of your accounts, as well as the number of recent inquiries on your report made by lenders to who you’ve applied for credit. Your score can drop if it looks as if you’re seeking several new sources of credit, a sign that you may be in financial trouble. (If a lender initiates an inquiry about your credit report without your knowledge, though, it should not affect your score.) Shopping around for an auto loan or mortgage shouldn’t hurt, if you keep your search to six weeks or less. But every inquiry you trigger when you apply for a credit card can affect your score. So be selective.
- The final 10% is determined by the types of credit used. Having installment debt like a mortgage, in which you pay a fixed amount each month demonstrates that you can manage a large loan. But how you handle revolving debt, like credit cards, tends to carry more weight since it’s seen as more predictive of future behavior. (You can pay off the balance each month or just the minimum, for example, charge to the limit of your cards or rarely use them)
What’s not in your FICO credit score: Contrary to popular belief, your age, employment history and where you live are not used in determining your credit score. This is not to say this information won’t be considered by lenders when evaluating you for a loan, its just that it will not factor into your FICO score calculation.
By focusing on these areas in the order they are listed will help you obtain any improved results you might be looking for when it comes to your credit scores.
Let me know your thoughts on this posting…
Be Bold!
What is the difference between a “FICO” score and a “Vantage” score?
Most people don’t have any idea how much their credit score affects their daily lives and that includes me. I learning more about how to manage my finances and this helps a lot.
This is an amazing blog with top notch information. I know the vast majority of people have no idea what their credit score is and how much it effects there lives. Especially, when they get their first credit card too young and realize when when it’s too late how much damage they have done, and how difficult it is to repair it. I will visit this blog often for information. Thank you for advising people of this very important info!