Key factors can negatively or positively impact your FICO credit score, affecting your ability to get a loan, rent an apartment or qualify for insurance. The number of accounts, payment history and types of credit cards you own help the Fair Isaac Company (FICO) determine your score and helps creditors assess your risk of defaulting on your payments. FICO scores range from a low 300 points to a high 850 points.To improve your credit score, the Federal Trade Commission suggests you pay your bills on time, review your credit report for errors and limit credit card use.
Payment History
Pay all your bills on time. Payment history accounts for about 35 percent of your FICO score. Debts that have gone into collections, late payments on your credit cards, tax liens, foreclosures and bankruptcy show a pattern of poor financial management, mark you as a poor credit risk and can stay on your credit report for up to seven years. Bankruptcies remain on your credit report for up to 10 years, according to he Fair Isaac Company.
Number of Accounts
Limit your number of credit cards especially if you carry a lot of debt. About 30 percent of your credit score is affected by how much you owe compared to your credit limits. For example, if your credit limits total $5,000 and your debts are $2,000, your debt-to-limit ratio would be 40 percent, lowering your credit score. Keeping your debt-to-limit ratio below 20 percent will produce a higher score and look favorable to creditors.
Age of Accounts
Avoid applying for a loan if you were issued your first credit card two months ago. Your length of credit history takes time to build and accounts for about 15 percent of your credit score. A longer credit history yields a higher score. Those with "thin credit" will have lower scores and must prove their ability to pay to creditors. If you have filed for bankruptcy, it may take several years to rebuild your credit and improve your score.
Types of Credit
Aim for a "healthy mix" of different types of credit, such as revolving accounts (credit cards) and a mortgage or car loan or installment type accounts. This can account for about 10 percent of your credit score and helps indicate your financial stability. Avoid owning too many high interest department store cards which can shave points off your credit score and signal to lenders you are a high credit risk .
New Credit
Resist the urge to apply for several cards at once. A high number of credit inquiries in a short period of time can drop your score. On the other hand, if you comparison-shop for a certain type of credit such as for a car or home loan, it will not lower your score as long as you do so within a 15- to 30-day period.
Tips
Order your credit report. You are entitled to one free annual credit from each of the credit reporting agencies. Examine your report for areas you can improve which will increase your score. Look for errors in your report that you can dispute and remove from your credit report. The Federal Trade Commission offers several tips for improving your credit score and repairing your credit.
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