Your credit report is filled with bits of information about you. They are fed into the software from Fair Isaac Corporation (FICO) to calculate your credit score. As a result, we have what is known as FICO Credit Score. Let’s address how your credit score is figured out and it will help you as how to go about improving your FICO Credit Score responsively.
The following are the five segments that constitute the secret formula along with the percentages that each segment stands for:
1. 35% - Your payment history: How is your on-time payment? Lower score could be the result of late payments.
2. 30% - The amount you owe: Have you reached the maximum on your cards? Reducing the debt can yield a better credit score.
3. 15% - The Length of your credit history: How old is your oldest account? If you have a longer history of sensible use of your credit, there is a good chance of an increase in credit score.
4. 10% - New credit: Have there been a lot of inquiries or new accounts? Lower credit score happens when you open many accounts in a short time.
5. 10% - Type of credit in use: Blend of credits is a good thing. Real Estate? Credit Cards? Good to have different types of credit. Lower credit card debt plus a car loan (as an example) can assist to increase your credit score.
From this secret formula, most of your credit score is dependent on how responsively you handle your payment and how much you owe in relationship to your credit limits. It is absolutely vital you pay the bills on time. This is prime indicator of your risk to the lenders. The amount you owe on each card is equally essential. It is wise to use 30% or less of your credit limit on each card.
Now, you can quickly pinpoint any error on your credit report. Have the errors fixed first, then address ways to responsively increase your credit score.
How do you think you measure up?