You are probably wondering what goes into your FICO credit score and how you can achieve and maintain a good score. The truth is that FICO doesn’t share their exact credit score formula with consumers, but what they do tell us is what guidelines they use and what goes into each guideline category.
Payment History (makes up 35% of your total score)
This is the most important factor in determining your credit score. It refers to how often you made debt payments on time in the past. In order to ensure a high credit score you must make bill payments on time. Late payments will continue to reflect in your credit score for up to seven years. Consider automating payments as one way to reduce the risk of late payments, or calling customer service to work out grace periods and avoiding late fees.
Amounts Owed (makes up 30% of your total score)
The amount you owe represents the total amount of unpaid debt. Having a large amount of unpaid debt is a concern for lenders. An additional factor in this category is the percentage of money spent in a given line of credit. Try to keep the amount you owe on lines of credit such as credit cards to 30% of the credit limit or less.
Length of Credit History (makes up 15% of your total score)
The sooner you begin to establish a credit history the better. Lenders like to see that you can stay on top of your debts over a longer period of time.
New Credit (makes up 10% of your total score)
You might think that applying for a bunch of different lines of credit or opening up multiple credit cards is harmless. Sorry, but it’s really important to be selective about your credit applications. Remember that store credit card you or your family signed up for to get a discount on your purchase? That probably cost you a few points on your FICO score. Going after many lines of credit raises concerns about why you need so much credit from a financial standpoint. Limit the times you apply for new credit to one or two times a year at most.
Types of Credit Used (makes up 10% of your total score)
Lenders want to see that you can manage and budget for different types of credit. You can do this by opening different types of credit such as a credit card, an installment loan, and utility bills.