FICO credit scores (called such because the method for finding them was developed by Fair Isaac and Company) are the most widely used credit scores, which help lenders determine whether you'd be a credit risk. FICO credit scores help provide a fair, objective standard that doesn't consider things such as race, nationality and gender. As you build your credit history, you should be aware of the factors that affect your FICO credit score.
Payment History
Payment history is the most important aspect in calculating your FICO credit score. Different elements considered include your number of late payments, how late they were, how many different accounts had late payments and whether an account ever went to collections. Some problems are more serious than others, and so will have a greater impact on your credit score: for example, one or two late payments won't make a big difference if your overall credit history is good, but bankruptcy can leave a black mark on your credit score for seven to 10 years.
Amounts Owed
The second-most important aspect in calculating your FICO credit score is the amount of money you owe. Your amount of available credit is as important as the actual amount of money you owe: for example, carrying a $500 balance on a credit card with a $1,500 limit is better than carrying a $300 balance on a credit card with a $300 limit. In addition, the amount you still owe for a loan in comparison to the total amount borrowed affects your FICO credit score.
Length of Credit History
In general, a longer credit history translates to a better FICO score, since more data is available about how good you are at making payments and using your credit responsibly. When considering the length of your credit history, the FICO credit score takes three things into account: the age of your oldest account, the age of your newest account and the average age of all the accounts. In addition, the length of time since you've last used certain accounts can affect your FICO credit score.
New Credit
Opening new accounts and making inquiries about new accounts affect your FICO credit score. This is because people who open many accounts in a short time tend to be a higher credit risk. However, your FICO credit score distinguishes between rate shopping---making inquiries to find the best interest rates---and risky behavior with new accounts.
Types of Credit Used
Your FICO credit score considers how experienced you are with different types of credit---for example, loans, credit cards and retail accounts. Demonstrated responsibility with a good mix of credit types will help raise your FICO score. If you have too many accounts of one type (the exact number depends on other factors in your credit history), it can negatively impact your FICO score.
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