How Is Your Credit Calculated?
FICO evaluates several data points on your credit report to determine what your FICO Score is. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).
Here is how they compute your score:
Credit History (35%)
Lenders check your credit history to determine whether you pay your bills on schedule. The best way to measure this is by depending on how you have paid your bills previously. Late payments, credit used, and collections all influence the recorded history of your FICO rating.
Outstanding Debt (30%)
The amount of debt you have divided by your credit limit is known as credit usage. When you have a higher credit usage, you are closer to your credit limit. This will create a lower credit score. Keep your credit usage balance around 30% of your credit limit or less.
Length of Credit History (15%)
Having a more established record as a consumer is another positive aspect because it gives more data about your history with handling money. From experience, I see that once your credit file is roughly 7 years old, you benefit greatly. Also, remember that every time you get a new account, it will decrease your credit length average.
Each time you make an application for credit, a request is added to your report. A huge amount of credit request implies that you are assuming various financial problems or that you are in a difficult situation with your finances.
Different Types of Credit (10%)
Having various types of credit is ideal since it shows your experience with dealing with a diversity of credit products. This is not a big factor in your FICO assessment unless you don not have a lot of data they can utilize to determine your score. You can open new accounts as you need them to improve this.
What Are The Factors That Decide Your Credit Score?
The most significant factors in deciding your score are 1) credit history, it is a record of whether you have paid your bills on schedule. 2) Sum of debt owed. This is where they check the amount you are using and see how much you have spent on the credit available. Lenders may deny cases of borrowers who are almost within their credit limit as they are more likely going to miss some payments. 3) Age of history, which is a factor determined by the normal age of your credit, just to know how long the account has been actively used.
Rachel Gibbs has perfected her craft in terms of credit and finances. She is an expert in credit restoration and financial education, leaving her clients satisfied with the results.