Your FICO score is used to measure your credit worthiness, and potential lenders consider your score, or rating, to determine if you meet their criteria for a loan and what interest rate will be applied to it. What factors determine your FICO score? Let’s look at the five key areas.
If your credit score were a pie, the biggest piece would belong to payment history. It accounts for 35 percent of your score. That means making on-time versus late payments on all your credit accounts will make or break you.
The next piece is how much debt you owe; it makes up 30 percent of your score. Credit companies like people who use less than 30 percent of their available debt limit. That means if you’ve got three credit cards and a total credit line of $10,000, you don’t want to ever carry a cumulative balance of more than $3,000.
Length of Credit History
Fifteen percent of your score is determined by how old your credit history is. In general, the older your accounts are, the better it is for your score. But even people who haven’t been using credit long can have high scores, depending on how good the rest of their credit report is.
New Credit Applications
Applying for new credit takes up 10 percent of the pie. If you apply for new credit every other month, that sends a red flag to credit bureaus.
Type of Credit
As for the types of credit you have, this constitutes another 10 percent of your score. It’s better to have low levels of revolving debt like credit cards and more kinds of non-revolving debt like a car loan or student debt. It makes you look less risky.
Let’s talk about your specific situation. Connect with Scorewell today to discuss factors that determine your FICO score and strategies to improve your financial picture.