FICO scoring is a system that lenders and underwriters use to determine what your interest rate on a loan is going to be. If you buy a house or car, the mortgage or the loan is determined by you credit report and your FICO score.
The score is based on the system developed by Fair Isaac Company (FICO) and the interest you pay, as well as monthly payments that are based on your personal credit history and score as well.
The same is true when you get a car loan, as well as the premium on your car insurance or homeowners insurance. Your personal credit score can even affect your chances of getting new employment.
There are a lot of things that go into FICO scoring and we will group that into about five categories.
So that you will understand the basics of how FICO score is determined, the percentages below reflect how important each of the categories are in determining your personal credit score.
Payment history (35%)
Payment history is the biggest factor in determining your FICO score. How many late payment or bankruptcies you have can hurt you significantly and the more recent the negative activity, the worse the score will be.
Debt (30%)
How much of the total credit line is being used on credit cards and other revolving charges? High balances or more precisely, balances that are close to your credit limit can negatively affect your credit score. Most lenders think 40%-60% of maximum is ideal.
History of Credit (15%)
How long have your accounts been open? High loan amounts that you have paid as agreed and have had open a long time work best. Closing old accounts can have a negative affect because it makes your credit history appear shorter.
Recent Pull of Credit (10%)
Every time you apply for any kind of credit you create an inquiry on your credit report. A lot of inquiries negatively affect your credit score. However, ordering a copy and checking your own credit report or personal credit score counts as a soft inquiry and does not go against your score.
Types of credit in use (10%).
Is your credit from a car loan or a mortgage? If it is a mortgage, how much do you currently owe compared to the original amount loaned. How many accounts are open. It is not always beneficial to open a new account to receive more available cred - 31379
The score is based on the system developed by Fair Isaac Company (FICO) and the interest you pay, as well as monthly payments that are based on your personal credit history and score as well.
The same is true when you get a car loan, as well as the premium on your car insurance or homeowners insurance. Your personal credit score can even affect your chances of getting new employment.
There are a lot of things that go into FICO scoring and we will group that into about five categories.
So that you will understand the basics of how FICO score is determined, the percentages below reflect how important each of the categories are in determining your personal credit score.
Payment history (35%)
Payment history is the biggest factor in determining your FICO score. How many late payment or bankruptcies you have can hurt you significantly and the more recent the negative activity, the worse the score will be.
Debt (30%)
How much of the total credit line is being used on credit cards and other revolving charges? High balances or more precisely, balances that are close to your credit limit can negatively affect your credit score. Most lenders think 40%-60% of maximum is ideal.
History of Credit (15%)
How long have your accounts been open? High loan amounts that you have paid as agreed and have had open a long time work best. Closing old accounts can have a negative affect because it makes your credit history appear shorter.
Recent Pull of Credit (10%)
Every time you apply for any kind of credit you create an inquiry on your credit report. A lot of inquiries negatively affect your credit score. However, ordering a copy and checking your own credit report or personal credit score counts as a soft inquiry and does not go against your score.
Types of credit in use (10%).
Is your credit from a car loan or a mortgage? If it is a mortgage, how much do you currently owe compared to the original amount loaned. How many accounts are open. It is not always beneficial to open a new account to receive more available cred - 31379
