While the real formulas that make up a FICO® Score are a bit of a mystery, you’re able to understand the weight given to each factor that goes into your score. Below are the factors that impact your FICO® Score and how much weight they carry. This one is the most straightforward. If you regularly make your monthly payments on time, it’s good for your credit score. Payments that are 30 or more days late can hurt your score. Also included in this category are potential negative marks like charge-offs, collections and bankruptcies. While charge-offs and collections remain on your report for 7 years, a bankruptcy may stay there for 7 or 10 years, depending on the type of bankruptcy you filed.1. Payment History (35%)
2. Amounts Owed (30%)
The category with the second-highest impact on your credit score is the amount owed on your debt. Here, you can exert a certain amount of control over the amount of spending you have on items like credit cards and other lines of credit. It’s best to use your accounts regularly but not so much that it looks like you’re overextending yourself. As a general rule, you don’t want to utilize more than 30% of your credit limit.
So, if you had a $10,000 limit, you wouldn’t want a balance of more than $3,000 at any given time. If you must carry a balance, try to keep it as low as possible to avoid paying more than necessary.
3. Length Of Credit History (15%)
If you have a long history of making on-time payments with a varied mix of revolving and installment loans, you’ll have a better credit score than someone just starting out.
4. Credit Mix (10%)
Lenders want to see a mix of installment loans, which may include car payments, personal loans and student loans. Lenders also like to see revolving accounts, such as those for credit cards. This combination shows that you can responsibly handle different types of debt, and you’ll boost the lender’s faith in your ability to repay your loan on time.
5. New Credit (10%)
Every time you get a new loan or credit card, your credit score takes a temporary hit. However, if you make your payments when they’re due and pay balances down or off, your credit score should go back up within 3 months or so.
