What Contributes to My FICO Score?

All financial institutions that lend funds to consumers are obliged to report the financial behavior of their consumers to 3 credit reporting agencies (CRAs): Experian, Transunion, and Equifax. These 3 credit reporting agencies, also known as credit bureaus, collect financial information and keep track of the financial behavior of consumers. Through this process, you establish your own unique credit history which serves as the basis for your credit score, or FICO Score (Fair Isaac Corporation). This three-digit financial grade, issued by each of the 3 credit bureaus, is used to protect your financial reputation.

It is important to ask yourself the following questions when developing your credit score:

  • Am I paying my credit card in full by the due date? 
  • How would my financial behavior be reported to the CRA? 
  • Am I building a positive financial history? 

Now, what is the weight or influence of each element on an overall score FICO score, and what is in a credit report?

35% payment history, 30% amounts owed, 15% credit length, 10% types of credit and 10% new credit

The majority of your FICO score is based on your payment history. So making sure you pay on time and in full. 

Approximate Credit Weight for each Year

40% current to 12 months, 30% 13-24 months, 20% 25-36 months and 10% over 37 months

The majority of your FICO score is credit within the last year. 

What actions will hurt my score?

  • Missing payments (regardless of dollar amounts, it will take 24 months to restore credit with one late payment)
  • Maxing out my credit card 
  • Opening up numerous credit accounts in a short time period
  • Having more revolving loans in relation to installment loans

What does not affect my score?

  • My income
  • Pulling my own credit reports also known as a "soft inquiry"
  • Making charges on my debit card
  • Being denied credit (credit reports don't show whether an application for a loan or credit card was approved or declined)
  • Length of my residence
  • Length of my employment

How can I improve my FICO Score?

  • Pay down on credit cards or better yet, pay off your credit card each month!
  • Do not close credit cards - you need that credit history.
  • Continue to make payments on time (Remember: old late pays will become less significant with time!)
  • Slow down on getting new loans
  • Acquire a solid credit history (This takes time!)
  • Move from revolving debt (e.g., credit cards) to installment debt (e.g., car loans, mortgages for houses)

 

It is never too early to think about your FICO score. Your credit history will decide your future score when you are ready to buy a car or a house. Protecting your financial reputation can also help you get better terms and interest rates when you apply for a loan or mortgage.