How FICO Scoring Can Affect You

Everyone knows that if you do not pay your bills, or don’t pay them on time, your FICO Score will go down.

Our goal should be to make the FICO Score go up. So, what is FICO?

It is a method of looking at consumers’ habits when using credit. Fair Isaac Corporation, became specialists in predicting how people use credit. Everyone uses credit differently, there’s no one size fits all, so it is impossible to measure the exact impact of each of the five factors FICO uses to determine your score. The five factors are:

  1. 35% payment history.  This is the most important of all the factors. It lets the lender of the money know if you have paid your past debts and if you paid them on time.
  2. 30% amount owed. Because you owe money does not always mean you are a high risk borrower.
  3. 15% length of credit history. Generally the longer credit history you have the greater the score. Even if you have not been using credit for a long time you could still have a high score. This depends on how the rest of your credit report looks.
  4. 10% new credit. It is considered a greater risk to have opened several credit accounts in a short period of time, especially for people who don’t have a long credit history.
  5. 10% credit mix. This is made up of credit cards, retail accounts, intsallment loans and mortgages.

These percentages can and will change depending on how you use credit.  For example, if you haven’t been using credit very long, the applicable percentage could be calculated higher.

FICO will look over your credit history and then calculate your credit score.

FICO scoring is one of the most important things in determining if you can qualify for a home loan, along with other items such as debt ratio and income.

Going to a free credit scoring agency is a good place to start. Be aware that this FICO Score will be different from a mortgage lenders’ FICO score. They are even more conservative in their scoring.

If you need more information on your credit, call me at 562-544-0449. I would be glad to help.

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