Credit Score Components 

Do you know what credit score components affect your credit most?

Understanding your credit score components and the formula used by Fair Isaac and Company (Fair Isaac), the company who institutionalized FICO scores, has been a mystery to most consumers.
A credit score is a numerical depiction based on statistical data, available on someone’s credit files, of whether a person is worthy of getting credit or not. Unfortunately, credit scores are almost a ruling element in everyday life now. So many things are based on your credit scores. Getting a mortgage, loans from banks, even employment in some cases, are dependent on where a person’s credit score lies.

FICO scores are a measure of credit risk, and by far, the most used credit scores in the world today. They have been shown to be predictive of any risk involved, and have allowed the cost of providing credit to go down and be more widely available to the average person. These scores are calculated based on a number of factors, each of which varies in its importance.  

 What are Your Credit Score Components?

  • Payment History (35%) - This is one of the most important credit score components to calculate your score. Fair Isaac has disclosed that this makes up at least 35% of your credit score. How quickly or how late you make your bill payments, be it your mortgage, credit card, bank loan etc determines this part of the score. For someone who is continuously paying late, depending on how long the respective account has been open, his/her FICO score can actually drop by 100 points. On the other hand, making your payments on time will improve your score slowly but surely. 
  • Credit Utilization (30%) - Fair Isaac has also revealed that 30% of your credit score is based on this credit score component. This refers to how much you are actually in debt as opposed to what your credit limits are. The sensible thing to do is always keep your debts to a minimum and pay off as soon as you can. Credit cards that are maxed out drastically reduce your credit score. A good rule of thumb is to only spend 30% of what your available credit is. 
  • Length of Time (15%) - The amount of time that your credit has been established is also one of the important credit score components that you should monitor.   It is important that you think carefully before closing any accounts. While it is wise to cancel any extra credit cards that you don’t use, don’t cancel those whose history is long and has been managed well. This only reflects positively on your FICO score. 
  • Types of Credit (10%) - FICO also calculates credit scores based on the types of credit obtained and used. This is next in the list of most important components. If someone has a good history of managing a range of credit types, for example consumer finance, installments etc, it raises their FICO scores.
  • New Credit (10%) - Another criteria used to determine your FICO score is a recent search of the amount of credit obtained. This means that people shouldn’t apply for multiple credit cards all at the same time, or open too many retail store accounts. This is viewed as an extremely risky move which can drop your credit scores by a significant number of points. In fact, if you are thinking about getting a loan concerning a big purchase in the near future, the best possible thing for you to do is avoid any other credit application for at least 18 months prior to this big loan.
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