So now that you have a basic understanding of what doesn’t impact your credit score, let’s talk a little bit more about your FICO score and what does have an impact. That way you will have a better understanding of what you need to do to improve credit!
Your FICO score is a score that essential judges how credit worthy you are. It can have a great impact on the terms that you receive on a loan because the higher your credit score the lower risk you are considered.
The exact formula used to calculate your FICO score is a proprietary industry secret.
However, the FICO Corporation has made available a general outline of what information they use in the credit scoring process. Here is a list of the factors used in calculating a FICO score, including how important each kind of information is to the formula:
Payment Habits: Everyone knows it is important to make payments on time. If you do not, your score will be impacted greatly as your payment history accounts for 35% of your overall FICO score..
Credit Used and Available Credit: This is an important ratio to a lender and it makes up 30% of your FICO score. Having plenty of available credit will raise your score. Also, paying down loans regularly but not closing them, and paying down your open revolving credit cards will increase the score. Generally speaking, you want to owe no more than 30% of your available revolving credit lines. It is important to note that closing revolving accounts will lower your credit score.
Length of Credit History: This information counts as 15% of your FICO score. This factor is important because it can shows how a borrower has behaved in the past and is a pretty good indicator of how they will behave in the future. If you have a long credit history your score will be higher, while those just starting out will have a lower score in this area.
Types of Credit and Recent Credit Inquiries: These two factors make up the last 20% of your score, or 10% each. There are different kinds of credit available to consumers and FICO looks at how an individual has handled these. If there are different kinds of credit that has been handled successfully then it raises the score. Also, bank loans impact your credit score favorably, while finance company loans have a negative impact on your overall score. The number of recent credit inquiries can give a picture of a persons current financial situation. If there are a lot of inquiries into your credit the score will go down.
By understanding what your credit score is made of, you can see the areas where you need improvement and improve your credit score!
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credit report repair,
FICO Score
