New Year, Better Credit Score: Post 2

It is difficult to learn how to increase your credit score until you know how it is calculated.  Your FICO is basically comprised of the following factors …

35% - Your payment history.

Any bills that involve borrowing, such as a mortgages, loans, car loans, credit cards, or home equity loans, are tracked to make sure you pay in a timely manner.  But be careful with other bills like cell phone bills, medical bills, or utility bills as well.  They aren’t regularly tracked but if you pay any of these too late and it goes to collections you may see them on your credit report as well.  Student loans also show up on your credit report.  Make sure you are paying in a timely manner and if you can’t and go into forbearance this will sometimes appear as a negative as well.

30% - The amount you currently owe

This is the amount currently owed on accounts and how it compares to your credit limits.  FICO likes to see that your balances are low or nothing at all which means that you are not spending more than you can handle.  However, having too much available credit is sometimes a negative as well.

15% - The length of your credit history.

FICO likes to see that you have long standing accounts, which means you are less likely to be a credit risk.

10% - How many newly opened accounts you have.

FICO looks as a person with newly opened accounts as riskier.  Because, really, why would you open new accounts if you weren’t planning on using them.

10% - How many credit inquiries you have.

Inquiries into your credit report are logged as they occur.  This would typically happen when you are shopping for loans, or trying to open a new account.  FICO interprets the higher number of inquires as to say you are shopping for more credit and is flagged as making you higher risk.

The great thing is that when you get your credit report, all three credit reporting agencies;  Equifax, Experion, and Trans Union will list any potentially negative items dragging down your credit score first on your report .  This way you don’t have to translate it for yourself.  They will list any late payments or collections items and they give a summary of why points were deducted, such as not having a long enough credit history.  The lesson here is that you will never know this stuff if you don’t get a copy of your credit report and score so go get it here now.