The Five Most Important Factors Affecting Your FICO Score
• Payment History – This makes up 35% of your FICO score. This is the largest portion of the score and is due to the direct relationship of defaulting on loans and not paying bills on time. Your FICO score looks at the negative events and judges based on the recentness of late payments, the frequency of late payments, and the severity of late payments. Severity meaning how late were you in paying your bills, 30 day, 90 days and so on.
• How much you owe makes up to 30% of your FICO score. Utilization is the term used and it the sum of all your outstanding debt divided by your credit limits. Your FICO score see this as the lower the better since the higher default risk on those who are close to their credit limits.
• How long you have had credit equates to 15% of your FICO score. Lenders like a longer history of accounts. There are two major factors here are the oldest account’s age and the average age of your accounts.
• Applications for credit make up 10% of your FICO score. This factor looks at how long has it been since you last applied for a new credit account. A negative factor here could be if you apply for several accounts in a short period of time. It is a factor based on the viewing times of your credit report by lenders.
• The credit mix you use makes up the last 10% of your FICO score. They want to see a “healthy mix” of credit. There is no rules what a healthy credit mix really is, but certain types of debt are seen as better than others.
Putting this all together generates your FICO score. An important note is your FICO score will put more emphasis on recent events compared to the past. You can easily lose points on your FICO score and it is not easy to gain them back. That is why understanding and knowing your FICO score is so important.
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