A Fair Issac Corporation score has two components. It makes or breaks your credit or loans and determines what kind of credit score you are eligible for. The FICO Score was named after the inventors of the credit risk score, a three-digit number that represents your credit work and the capacity to pay your debts. The score is calculated from the information in your credit reports. It is essential that your credit reports are correct and complete, because your score is extremely important.
As a spender on credit, you should try to focus your attention on making sure that the FICO score passes the requirements of certain firms. You can achieve this through effective spending habits. Read on to learn more about what constitute your FICO score.
What Makes Up Your FICO Score?
A FICO score ranges from 300 to 850. A person with a higher range score has a better chance of gaining credit and low interest rates. Three credit rating agencies – Experian, Equifax, and TransUnion – act to calculate your FICO Score. You actually have three credit scores instead of just one. The scores differ from each other because credit report information varies between credit reporting agencies.
Below are the elements of your FICO score and how they are calculated:
- Payment History – 35% (frequency of paying your bills on time)
- Credit Utilization – 30% (how much you use credit, compared against debt)
- Credit History – 15% (time when you acquired your credit or loan)
- Credit Types – 10% (various credits you have such as mortgage)
- Credit Inquiries – 10% (how often lenders check your credit)
FICO Scores And What Affect It
What you spend and how often you pay your bills will affect your credit score. Late payments will lower your FICO score. If you do pay your bills on time you will receive better interest rates and credit. Every time you your FICO score, try to take note of the positive and negative areas in your report. Then compare them to the following year to see what changed and how to improve.
Other factors that can affect your FICO score and that you should pay attention to include:
- Increased credit card balances
- Closing credit card accounts
- Repossessions or foreclosures
- Reduced credit limits
- Opened new credit accounts
- Collections, tax liens, or debt-related judgments that can be made against you.
It is very crucial that you check your credit reports for any errors, because these blunders can affect your FICO score negatively. If you are feeling lost as to how to handle it, use a credit repair service. They can tell you what went wrong and how to handle the situation. Make sure that you move on fixing the error immediately, because in the end you will be suffering from a low FICO score.
Try and stay on top of your FICO score and keep it high to receive the best benefits for your credit application.