A low FICO (Fair Isaac Company) score can affect your ability to purchase a vehicle or house or even to obtain work. Understanding the FICO scoring process will help with choices concerning the closing of credit card accounts.
Payment History
Payment history accounts for 35 percent of credit scoring. Paying your bills late will lower your score. Payments made three months late can stay on your credit report for seven years.
Paying off Debt
A mere 10 percent of your credit score is based on how you have paid off credit debt. A variety of accounts--vehicle loans, credit cards and mortgages--paid in full is better than just one type of credit debt.
Inquiries and Applying for Credit
In general, looking for the best rates through multiple companies during a two-month time frame won't negatively affect this 10 percent of your credit score. However, applying for five new credit cards will.
Length of Credit History
Fifteen percent of a credit score is based on the length of credit history. The longer you keep an account active and in good standing, the greater will be the positive effect on your credit score.
Credit Usage
The amount owed on vehicle loans, credit cards and home loans factors into this final 30 percent. Maxing out your credit cards to your credit limit and owing most of the principal on your loans will affect credit negatively.
Closing Credit Cards
After examining how FICO calculates a credit score, carefully weigh a decision to close any credit accounts that are in good standing. The longer an account is open, even if it's seldom used, the more positive the impact on your credit rating. Also, open accounts, with their credit limits, lower the amount of your credit card debt as a percentage of the amount of credit available to you--another factor that will count favorably toward your credit score.
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