Understanding Your Fico Score
FICO scores are used to determine if you are creditworthy when applying for a loan. My team and I believe the first step to enhancing your credit score is understanding what factors are driving your score. Today I am going to focus on 5 categories that are used to determine your FICO Score.
Before I zone in on the 5 categories I want to make sure you understand that evaluating credit varies from person to person. For example, a borrower who has not been using credit long will be factored differently than those with a longer credit history. For some people, one factor may have a larger impact than it would be someone with a different credit history. So it is safe to say, it is impossible to calculate the exact impact of every single category used to calculate your credit score without looking at your entire credit report.
The 5 categories are as follows:
Payment History – This is one of the most important factors used to determine your FICO score. Any lender will want to see that you have a history of paying on time. Not paying on time will negatively impact your score.
Length of Credit History – Typically, a longer credit history will positively impact your FICO score. However this goes back to what I previously mentioned. It is possible for those who have not been using credit long to have a high FICO score, if the rest of their credit report looks good. When looking at the length of credit history, your entire credit history is taken into account as well as each specific account.
Amounts Owed – Having high balances on your accounts, or having them maxed out, will have a negative affect on your score. However, owing a lot of money on them does not automatically make you have a lower credit score. Again, it depends on your whole report.
Types of credit accounts – Having a mix of accounts such as credit and retail accounts, student loan accounts, auto loan accounts, and mortgage loans will determine your FICO score.
Inquiries – Several new accounts or inquiries can negatively impact your FICO score. If a borrower has multiple new accounts they can be viewed as a high-risk borrower. This is even more true for people who do not have a long credit history.
Hope this information helps! It is important to understand to help enhance or maintain your credit score. Any credit questions? Contact me today!