A FICO score, instituted and maintained by the Fair Isaac Corp., is the most widely used barometer of an individual's creditworthiness. Banks, mortgage brokers, automobile lenders and other creditors use this score to determine whether and how much to lend, as well as how much interest to charge. Consumers should access their reports at least once each year to keep abreast of changes and to correct any errors that may negatively impact their score.
Length of Credit History
Creditors like to see lengthy histories, which have proven to be accurate indicators of future payment patterns. A credit report lists accounts going back at least 10 years, and reveals late payments, account status and monthly payment history. Consumers who have histories going back just one or two years are not in a position to project payment patterns years into the future, a situation that lenders well recognize.
Credit Utilization
Consumers may juggle accounts and do whatever they can to remain current, but if their credit card, loan and mortgage balances run right up near the total loan amount or credit line, this represents a red flag to creditors. The question then becomes why someone needs access to so much credit, which leaves little margin for flexibility in case health or employment problems arise.
Payment Record
Even if consumers have assets and steady jobs, they may not always be diligent or responsible enough to pay on time each month. Creditors value the pristine behavior of paying every month on all accounts, which lowers their own costs for follow-ups and collections. People who switch jobs often or who do not have the proverbial rainy-day fund can easily fall behind with payments, a circumstance that creditors are eager to avoid.
Inquiries
Too many inquiries can indicate that a consumer is desperate for credit, which can quickly lead to becoming overextended. The exception is when shopping for a mortgage or automobile loan, which creditors understand has more to do with getting the best rates and terms than trying to buy several houses or cars at once. The credit reporting agencies take this into account, so if many inquiries come from a similar loan source within a 30-day period, scores will not be negatively impacted.
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