FICO credit score has great significance on your lifestyle. This three-digit number can have an impact on a variety of factors, including your chances to get a loan and the interest rate you pay. This blog post will discuss 5 factors that influence your FICO credit score and how you can keep your score as high as possible!
5 Factors that Affect Your FICO Credit Score
Your FICO score is determined by a number of factors, along with your history of payments that are paid both timely and late, credit utilization rate, length of credit history, credit account types, and more. Let’s have a thorough overview of them.
- Payment History: It is the most important factor, making up 35% of your score. Do you regularly pay your payments within the deadline? If not, that late payment could drop your score by 180 points. If you have a track record of making payments close to the deadline or not at all, it will be very unproductive. Moreover, derogatory remarks like "account placed for collection" can also negatively impact your score.
- Credit Utilization: Credit utilization is the second most crucial factor in your FICO score, accounting for 30% of the total. This represents how much of your available credit is currently being used. Maintaining a low credit utilization rate is crucial because it demonstrates to lenders that you are a responsible borrower who doesn't use full credit limit on your cards.
- Types of Credit Accounts: Types of credit accounts are the third most important factor in your FICO score, accounting for 15% of the total. This is referring to the combination of various credit account types, such as installment (loans) and evolving (credit cards). Lending institutions view having a mixture of both as advantageous.
- Length of Credit History: Length of credit history is the fourth most important factor in your FICO score, accounting for 15% of the total. A long history demonstrates to financial institutions that you are an accountable borrower who can be relied upon to make loan repayments. There are still steps you can take to raise your credit score even if you don't have that much credit history.
- Credit mix: The last important factor the affects FICO credit score is your credit mix. This accounts for 15% of your total FICO score and measures the various types of credit you have, such as revolving credit (e.g., credit cards) and installment credit (e.g., auto loans). A variety of credit types demonstrates to lending institutions that you are an accountable borrower.
Tips to Improve Your FICO Credit Score
It's not that difficult to keep your FICO score in great condition. A study shows that 67 percent of Americans have "decent" or "superb" credit scores. You can take a few important steps to raise your credit score. Be sure to first check that all of your dues and bills are being paid within the deadline.
This will have a huge bump in points in your payment history. This involves any loans of any kind, including credit card debt. Strive to maintain your accounts low as well.
This entails using no more than 30% of the available credit on every credit card. Finally, unless absolutely necessary, avoid opening any new credit lines. You can raise your credit rating and start down the track to economic success by implementing these straightforward suggestions.
Conclusion
So now you understand, the five vital factors responsible for influencing your FICO credit score. Remember, always pay your bills on time, keep your debt levels low and avoid opening too many new accounts at once. And lastly, monitor your credit report regularly for any errors or signs of fraud – you can do this for free or by hiring a third-party service. By adhering to these tips, you can maintain a high credit score and enhance your financial future.
