Did you know that FICO® Scores were first introduced to lenders over 25 years ago in 1989
With all FICO® Score versions, the keys to responsibly managing FICO® Scores remain the same:
- Pay bills on time
- Keep credit card balances low
- Open new credit accounts only when needed
How's FICO Score broken down ?
This is one of the most important factors, and every lender wants to understand your willingness to pay your outstandings before extending you more credit. Even if you close a trade-line (credit card or paid-off loan), the payment history on that trade will still be taken into account while calculating your score. Once you are late on a payment (by more than 30 days for credit cards), it takes ~2 years for that to be removed from your report. However, in some rare cases you can reach an agreement with the lender and get it removed earlier. You can contact us to get more details.
Amounts Owed (30%)
This is not always a negative factor, but over-extending yourself can definitely lead to diminishing score. This is reflected in the percentage of a person's available credit that has been used, which usually means that borrower is more likely to make late or missed payments. However, amounts owed are looked at by type of credits:
- If you have a personal loan of $50,000 and have paid $10,000 (80% due) of the loan but every payment has been on time it indicates willingness to pay back and will not necessarily be a negative factor)
- If you have a credit card with a line of $50,000 and you have already used $40,000 (80% utilized) and are revolving on the balance, this might be a negative factor on your report.
It is also important to understand, that even if you pay your credit card issuer in full every month, the balance reflected in your report may be different. It depends on when your lender reported to the bureau and may affect your score.
Length of Credit History(15%)
Usually, the older the credit report higher the score but since this factor only accounts for 15%, other factors may drive the score. Following is taken into accounts when looking at length of credit history:
- Age of the oldest account
- Age of newest account
- Average age of all your accounts
- When did you last use your accounts
You can also check this forum for more details on the calculation of average account age.
New Credit (10%)
Opening a lot of credit cards over a shot span of time may indicate that a borrower is credit hungry and is assumed as a negative factor. Moreover, it will also deplete the average account age (as explained above), thus driving the credit score lower. Even though FICO takes into account "rate shopping" but don't apply for too may cards rapidly. Each new application comes with an inquiry which usually don't impact the score much and remains on the report for 24 months. However, most lenders look at inquiries within last 12 months and having a lot of inquiries may lower the chances of getting credit.
Credit Mix (10%)
FICO will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. You don't need to have one of each type, and each one of them have a different scale they are rated on. Maintaining a good usage of any of these can increase your score given you pay on time and don't remain inactive for a long period.