A Breakdown of Your Credit Score

A good credit score is important when applying for a loan, a credit card, and sometimes even a job. It can be difficult to raise your credit score, but it is a lot simpler when you know exactly what determines your credit score. The first thing that you should know is that there are different methods used to determine credit scores, but most lenders use the FICO scoring method.

Creditors and other agencies report information to three major credit bureaus, and the FICO scoring method pulls information from each of the major credit bureaus to determine your credit score. Each factor that contributes to your credit score is weighed according to importance. Credit scores range from 300 to 850, with 850 being the highest credit score possible. Read on for a complete breakdown of your FICO credit score.

  • Payment History: The payment history on all of your accounts makes up 35% of your FICO credit score. This score takes into account how many bills you paid late and if any accounts were sent to collection agencies. A bankruptcy will also show up in this section.
  • Credit Utilization: Your credit utilization is the percentage of your total credit line that you are utilizing. It is best to have a credit utilization of 20% or less. You should avoid a credit utilization of 90% or more because this is considered maxing out your credit cards. Your total credit utilization is the utilization across all of your credit cards rather than the utilization of each credit line individually. Your credit utilization accounts for 30% of your FICO credit score.
  • Average Age of Credit: The average age of your credit lines accounts for 15% of your total FICO credit score. Credit agencies prefer that you have had credit lines for longer lengths of time because they can have more payment histories to base their predictions on than they would have with newer lines of credit.
  • Hard Inquiries: Hard inquiries on your account are inquiries that you have given permission for, like when you apply for new credit cards. These inquiries negatively affect your FICO score for a short period of time. They account for 10% of your FICO credit score. When you apply for several credit cards or loans in a short period of time, the score interprets these inquiries as one inquiry so that you can find the best deal for a credit card or a loan.
  • Total Accounts: The last factor that the FICO credit score takes into account is the amount of and the different types of credit accounts. The score for your total accounts makes up 10% of your total FICO credit score. You will get a higher score for having a higher amount of mixed credit accounts, including installment loans, revolving credit cards, mortgages, and charge cards. This shows that you have experience with a variety of different types of credit lines.