I would like to share with you, what actually makes up your FICO Scores. Many people have no clue how the scores are actually calculated so this information will put you far and above anyone else walking around in America, when it comes to credit.
Payment History 35% This refers to making all of your payments on time. If you have a late payment two years ago and just received a recent late payment your most recent late pay will have a greater affect negatively on your FICO Score.
Amounts Owed 30%: If you have credit cards, which you should, please pay close attention to this. Amounts owed or also called Utilization Rate. The greater the percentage of the card used the lower the FICO Scores. If you have a credit card that has a maximum balance of $1,000 you should not ever go over 10% or $100.
Length of Credit History 15% This is pretty simple the longer average age of credit history the better. If you have two accounts, 1 account 5 years and another for 1 year, what your average age is 2 cards divided by the number of years in this case 6. Your average age of history is 3. If you open new cards you can see how this can have a negative effect on your credit score. This is why when you open a new credit card your FICO score drops. So the next time you are at a department store and they tell you if you apply for a credit card you will receive an additional 10% off. You can now politely tell them, “no thank you I would like to save the 15% on my FICO score.”
If you want to add credit history to your FICO, check out the Z Black Card
New Credit 10% Ok so this one is very tricky. First what is new credit? New credit isn’t just always getting something on finance. This is where most people go wrong. You walk into a mall see a nice piece of jewelry and the smooth talking sales lady talks you into applying for credit. You fill out the application however you never got that piece of jewelry (you changed your mind or whatever) so you convinced yourself you did well by yourself. What people don’t realize is that FICO can’t tell if you got the item or not. So any time anyone pulls your credit consider this Negative. Make sure you are positive you will qualify and second you are going to use that line of credit. When someone other than you pull your credit this is called a Hard Inquiry. Soft Inquiry is when you pull your own credit via a credit monitoring service or going through www.annualcreditreport.com. Some credit monitoring services allow several Soft Inquiries a month and this has no negative impact on your score what so ever.
Types of Credit 10% There are several different types of credit
Revolving Lines of Credit: This line of credit is any line of credit that is when your amount do is determined by your account balance. Credit Cards, Home Equity Lines of Credit, etc.
Installment lines of Credit: This line of credit is where you have a fixed monthly payment. Home Mortgages, Auto Loans even a personal loan is considered installment lines of credit.
The more types of credit the better. How Fico looks at this the more experience you have dealing with several types of credit the better. So what you want is a good mix of credit to show Fico not only are you responsible paying but you are accustomed to several different types of credit.
Here is a scoring model to take into consideration.
John Doe –> Current Fico Score 700-710
Score after one of these is added to credit report:
- Maxing out credit card 650-680
- A 30-day delinquency 600-670
- Settling a credit card debt 615-635
- Foreclosure 575-595
- Bankruptcy 530-550
QUICK TIP: 65% of your FICO Score is derived from how you handle your credit cards. Keep your balances low and always pay on time.
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