The Fair Isaac Co. created the FICO credit scoring model that the three major credit bureaus use to calculate the credit scores lenders use to determine a consumer's creditworthiness. Your credit score can impact many areas of your life, and understanding how it is calculated can help you build it up over time. Several factors go into calculating your FICO score.
FICO Score Basics
The FICO score is a numerical representation of the information that is contained in your credit report. Your credit report is filled with information provided by your creditors. The FICO scoring system runs from 300 up to a maximum of 850. Your credit score from each of the three major credit bureaus may be different, because each bureau might have a slightly different mix of information about you in your credit file.
Past Payment History
The biggest variable in calcuating your credit score is your past payment history. This factor looks at whether you have paid your bills on time and considers practically every bill that you have. Your credit file can include information about your payment history with credit cards, mortgages, auto loans and even your utilities. This variable makes up about 35 percent of your total FICO credit score. If you miss a payment, it can significantly affect your score.
Amount Owed
Another important factor that is used when calculating your credit score is the amount that you owe creditors. This is typically based on a ratio that compares the amount you owe to the amount of credit that you have available to you. For instance, if you owe $5,000 on credit cards and you have an available credit limit of $10,000, you have a credit utilization ratio of 50 percent. If you can keep this ratio below 30 percent, it makes you look like a better credit risk.
Additional Factors
The length of time that you have used credit is another factor considered by the credit bureaus. Having a longer credit history helps boost your FICO score. The number of new accounts that you opened recently can also have an impact on your score. If you open too many accounts at once, it hurts your score because it looks like you need access to additional credit. Having a mix of different types of credit can boost your score overall. If you only have one type of credit, it does not look good in eyes of your creditors.
0 comments:
Post a Comment