S. Michael Windsor asked:
What Exactly Is a FICO Credit Score Composed of?
Your FICO score is a very important item to keep monitored on a regular basis due to the fact that it, in a large part, has a lot to do with getting loans, insurance, even a job and more. As we all know, FICO scores cover a lot of our financial background, but what areas are these? There are five main areas and the percentages may differ slightly between reporting companies. Payment history, amounts owed, length of credit history, new credit, and types of credit are all considered in your credit score.
Payment history holds the most water in terms of FICO scores as the area usually consists of around 35% of a credit score. This factor shows how well an individual has made payments in the past and if there have been any delinquencies along the way. Other items such as bankruptcies will show up under this section. Remember that if any delinquent payments appear on a credit report, time has an affect on the weight of that issue.
The next category is amounts owed. Amounts owed consists of around 30% of the credit score and this category basically consists of what your outstanding balances are and how much credit you have left in your revolving debt accounts. This is looked at in the form of a ratio where it compares balances against the actual amount of money available to you. Remember that opening more accounts will not exactly help you in the long run if you find yourself in this situation as it will affect another category which is the new credit area.
Next, the area involving the length of your credit history takes its position at around 15% of your FICO credit score. This area simply measures all the data referring to how long you have actually been making payments on different types of loans or revolving debts. This has a lot to do with your credit score as it shows the potential lender how much evidence of experience with making payments you can provide them with so that they can, as always, minimize their risk that the borrower may potentially default or not make payments on time.
Now, back to the item regarding opening new accounts to add more credit to your balance and available credit ratio, when a person opens new accounts or even makes new account inquiries, this all goes onto that person’s credit report therefore affecting their score. New credit inquiries consist of about 10% of your credit score. Now some individuals may have applied and obtained new accounts as they improve their credit after a bankruptcy of history of delinquent payments. This situation, if positive, will really help a person’s credit score after the fact. But in most cases it’s best to have the same accounts for longer periods of time.
Last, the types of credit accounts that you are currently making payments on affect your credit report as it consists of around 10% of your credit score overall. The main issue here is that the lenders want to know, first, that you are paying loans off on time, but also, what types of accounts these actually are. An account from a popular electronics store where a person makes payments on a new microwave oven is not the same as a mortgage. FICO scores are adjusted in order to show this difference in your credit report.
If there is one thing to remember, it is that your credit score is one of the most valuable things you can have when applying for a loan and more. Your credit score, however, has much more relevance to your actually getting the job you want or even being able to receive medical insurance in many cases as well. Everyone wants clients, employees and customers who are responsible and who get the job done be it making payments or completing tasks for an employer. If the credit score is not monitored regularly, the negative issues, whether or not they are your fault (i.e. identity theft) that commonly affect individuals’ credit scores may very well take affect. So watch that credit closely and make sure that you are being represented in the fairest of ways overall.
Jorge
What Exactly Is a FICO Credit Score Composed of?
Your FICO score is a very important item to keep monitored on a regular basis due to the fact that it, in a large part, has a lot to do with getting loans, insurance, even a job and more. As we all know, FICO scores cover a lot of our financial background, but what areas are these? There are five main areas and the percentages may differ slightly between reporting companies. Payment history, amounts owed, length of credit history, new credit, and types of credit are all considered in your credit score.
Payment history holds the most water in terms of FICO scores as the area usually consists of around 35% of a credit score. This factor shows how well an individual has made payments in the past and if there have been any delinquencies along the way. Other items such as bankruptcies will show up under this section. Remember that if any delinquent payments appear on a credit report, time has an affect on the weight of that issue.
The next category is amounts owed. Amounts owed consists of around 30% of the credit score and this category basically consists of what your outstanding balances are and how much credit you have left in your revolving debt accounts. This is looked at in the form of a ratio where it compares balances against the actual amount of money available to you. Remember that opening more accounts will not exactly help you in the long run if you find yourself in this situation as it will affect another category which is the new credit area.
Next, the area involving the length of your credit history takes its position at around 15% of your FICO credit score. This area simply measures all the data referring to how long you have actually been making payments on different types of loans or revolving debts. This has a lot to do with your credit score as it shows the potential lender how much evidence of experience with making payments you can provide them with so that they can, as always, minimize their risk that the borrower may potentially default or not make payments on time.
Now, back to the item regarding opening new accounts to add more credit to your balance and available credit ratio, when a person opens new accounts or even makes new account inquiries, this all goes onto that person’s credit report therefore affecting their score. New credit inquiries consist of about 10% of your credit score. Now some individuals may have applied and obtained new accounts as they improve their credit after a bankruptcy of history of delinquent payments. This situation, if positive, will really help a person’s credit score after the fact. But in most cases it’s best to have the same accounts for longer periods of time.
Last, the types of credit accounts that you are currently making payments on affect your credit report as it consists of around 10% of your credit score overall. The main issue here is that the lenders want to know, first, that you are paying loans off on time, but also, what types of accounts these actually are. An account from a popular electronics store where a person makes payments on a new microwave oven is not the same as a mortgage. FICO scores are adjusted in order to show this difference in your credit report.
If there is one thing to remember, it is that your credit score is one of the most valuable things you can have when applying for a loan and more. Your credit score, however, has much more relevance to your actually getting the job you want or even being able to receive medical insurance in many cases as well. Everyone wants clients, employees and customers who are responsible and who get the job done be it making payments or completing tasks for an employer. If the credit score is not monitored regularly, the negative issues, whether or not they are your fault (i.e. identity theft) that commonly affect individuals’ credit scores may very well take affect. So watch that credit closely and make sure that you are being represented in the fairest of ways overall.
Jorge
