How is my FICO score calculated? What determines my FICO score? Anything I can do to keep my FICO score up?
Let’s start by breaking this down into the five neat components of what affects your FICO credit score because yes, there are specific answers to all those questions above. With this knowledge, you can properly manage your accounts and achieve top credit scores.
Timely payments 35%
Bothersome as it may be, every account you own has its due date by when the balance must be paid up. Keeping to the due date to make your payments is a crucial factor for your credit score. A late payment affects your score and it makes no difference what the balance amount is. Once a payment is overdue by 30 days or more, it is very likely to have done damage to your score.
Credit Utilization 30%
Credit cards all have a set credit limit (except charge cards). The percentage of that credit limit that you spend per month is called credit utilization.
You should keep to spending just 9% of your credit limit on your personal credit cards.
It is also good to try to have one credit card which never has any balance.
Most business cards don’t get reported to the credit bureaus so that saves you the headache of worrying about business balances affecting your credit score.
Credit History 15%
The amount of time your accounts have been open for creates your credit history. The longer an account is open, the better credit history you will have. Good credit history improves your credit score. It’s a good idea to open a couple of accounts with no annual fee. Keep them always open, this way you automatically keep on increasing your credit history.
Credit Mix 10%
There are two types of accounts you can possibly have; installment loans and revolving credit.
Installment loans are those which have a set monthly amount to be paid; including car leases, car loans, mortgages, and any loan.
Revolving credits are those which do not have a set monthly amount to be paid; including credit cards, and any credit lines.
Credit mix is to have a couple of each type of account, approximately 5 in total. This shows how much you can handle so the more of a mix, the better will be your credit score.
New Credit 10%
Getting approved for a new credit card can lower your score temporarily, though it will usually be up by six months post-approval.
The credit pull done at the time of application can lower your score as well but only temporarily.
Just make sure not to apply for more than 3 new trade lines within a six month period as that can have too much of an effect on your credit.
The Factors That Have No Say In Your Credit Score
In the same way, it’s important to know which factors help you build credit. It’s also important to know which factors do not help you build or do not hurt your credit score. Here are some of them.
- How often you open and close bank accounts
- If you pay your rent on time
- Whether you dispute credit card charges
- Place of residence
- Marital status, race, or religion,
- Whether you are disabled or not
- Whether you receive public assistance or not
- Your job and how much you earn (it’s no difference if you are homeless or a millionaire)
- Child support obligations, if you have
- Whether you are in credit counseling
- Interest rates on your credit cards or other loans
- Credit inquiries you have made to view your credit report
- Information that does not show on your credit report. Or, information that is no longer on your credit report
- Credit inquiries that are older than 12 months even if they still show on your credit report.
- Credit cards that were closed in good standing – even if it states “closed at credit grantor’s request.”