FICO scores, often called credit scores or credit ratings, are numerical measures of your creditworthiness. These ratings, which range from 300 to 850, determine whether or not individuals can get home loans, car loans, credit cards or other types of credit-related financing. Additionally, some employers use FICO scores to determine whether or not to hire a candidate. Several factors influence FICO scores.
Payment History
Your bill payment history has the largest impact on your FICO score, according to the Fair Isaac Company, the corporation that designed the credit scoring algorithm. In fact, payment history accounts for 35 percent of your FICO score, meaning that making timely, full payments on your bills is crucial to maintaining a good credit score. For the purposes of credit ratings, payment history includes bills from credit cards, installment loans, home loans, car loans and student loans.
Amounts Owed
Amounts owed has the second-largest impact on your FICO score, accounting for 30 percent of the rating, says Fair Isaac. Your credit card balances and installment loans--including home and car loans--all affect the amounts owed factor. Generally, keeping credit card balances low is best for your FICO score, as is having little outstanding on the total amounts of your installment loans. Additionally, the number of accounts with balances you have also affects your FICO score.
Credit History Length
The total time since you opened your first account also has a significant affect on your FICO score, accounting for 15 percent of your rating, says Fair Isaac. Specifically, your FICO score takes into account the age of your oldest credit account from any category. Additionally, your FICO score takes into account the age of your oldest installment loan, credit card and revolving credit line.
New Credit
Applying for a lot of new credit can affect your FICO score, according to Fair Isaac. New credit, which accounts for 10 percent of your FICO score, factors in newly opened credit accounts and recent credit inquiries, all of which lower your credit score. On the other hand, newly establishing positive credit history after previous bad credit will raise your FICO score.
Types of Credit Use
Fair Isaac's algorithm favors individuals who have a wide variety of credit account types. In fact, types of credit accounts for 10 percent of your FICO score. To help maintain a high credit rating, you should have a good mix of credit accounts, including home loans, car loans, installment loans, lines of revolving credit and credit cards.
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