Know Your Rights

What Makes Up Your Credit Score

Your FICO score is the most common credit score used to make decisions on whether or not you are considered financially responsible and worthy of extending credit to. Your credit score, specific to you, is made up of 5 components, each assigned a specific percentage.  Using the information contained in your credit report, FICO takes the data and breaks it up into five categories.  The following is a list of the five categories and an explanation of how each category contributes to your overall score. 

Payment History:

Payment history makes up 35% of your total score, making this category the most important and influential factor in determining your score. While each account you maintain is reported with your repayment history, FICO attributes your failure to repay larger loans as more damaging to your score and states the easiest way to improve your score is by making timely and consistent payments. 

Credit Utilization:

The area of credit utilization, the amount of available credit that you borrow or use, makes up 30% of your score, still contributing to a large chunk of how your score is calculated.  In simpler terms, credit utilization is how much of your available credit you have used.  For example on your credit card, are you close to you maximum limit or do you try to keep your balances low by paying off the card in full every month or making an effort to pay a good majority of the debt?  FICO says that utilizing about 10 to 20% of your available credit is a reasonable amount to help you maintain a good score.    

Length of Credit History:

The length of time you have maintained each account makes up 15% of your credit score.  Consumers who have maintained positive accounts for longer periods of time will benefit from their financial responsibility and be able to improve their score.  Obviously, if you are new to the world of credit, it will be next to impossible to have a perfect score, so the sooner you start to build credit the closer you will be to improving your score.   

New Credit:

While new consumers will not reap the benefit of building their score from a previous credit history, opening and maintaining new accounts makes up about 10% of your score.  While a credit newbie should avoid opening too many new accounts, opening a few at a time will and making timely payments will build your credit and show you are financially responsible.  FICO encourages consumers to open accounts only as necessary to avoid looking like you are in financial trouble and need access to credit, which would deter lenders from extending you credit.

Variety of Credit:

FICO says that having a variety of debt will improve your score and attribute to your overall score by as much as 10%.  Maintaining credit cards and installment loans will help keep your score positive and show lenders that you are less of a credit risk by your ability to pay off a variety of debt in a timely fashion. 

If you need assistance or advice about how to improve your credit score, contact SmithMarco P.C. for a free case review.

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