How is a FICO Credit Score Determined?

FICO CREDIT SCORE BREAKDOWN

When wanting to establish credit or raise your credit score,  a basic understanding of the comprising elements can assist you when making financial decisions.  A higher credit score leads to future benefits including lower interest rates, higher loan limits, and overall approval to credit card and loan applications.

How is a FICO credit score determined?

  1. Payment History (35%).  The most important factor in calculating credit scores is payment history. History is used to forecast future behaviors.  Making consistent and on-time payments to your credit cards and loans is one of the best ways to improve your credit score.
  2. Amounts Owed (30%).  FICO views those who habitually max out their credit cards as people who cannot handle debt responsibly.  Borrowers should maintain low credit card balances, and although there is no exact utilization ratio, many financial experts refer to the ‘30% rule’.  Example – If your credit card limit is $1,000, try not to charge over $300.
  3. Credit Length (15%).  A longer credit history offers more information on financial behavior.  It is impossible for a person who is new to credit to have an excellent score, as it takes time.  Those with credit should maintain their long-standing accounts.
  4. Types of Credit (10%).  A mix of credit (accounts, credit cards, and installment loans) is taken into consideration to determine a credit score.  A borrower with a good mix of credit generally represents less risk for lenders.
  5. New Credit (10%).  Borrowers should avoid opening too many credit lines at the same time, for such financial behavior might suggest financial trouble.  Consumers are encouraged to apply for and open new accounts only when needed.

For more resources and information on credit, visit the UWW Financial Literacy Center.

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