Worried about your credit? Not sure where your score comes from? We can help. Let’s take a closer look at the factors that make up your FICO score, so you can know how to improve your score for the future. Many banks use the FICO Credit Score to determine whether they will give you a loan, so let’s check out what makes up a FICO Credit Score.
Payment History – 35%
The first, and biggest, section of your credit score is made up of payment history. This is because banks and other lenders want to be able to tell if you are going to pay your loan back. They feel, a good way to determine that is by how you have paid back other loans or credit in the past. This is why it is very important to make all your payments on time.
Amounts Owed – 30%
This section Amounts Owed or Credit Utilization is how you use your credit. If you are frequently maxing out credit cards that is not good. It is okay to owe money, as long as you are making timely payments back to your lender.
Length of Credit History – 15%
The length of time you have had credit accounts open accounts for 15% of your FICO score. This determines that you can pay back money owed over a period of time. If you are a new credit user, this may account for your score being a little bit lower because you simply haven’t built up the length to have this section boost your score.
New Credit – 10%
This section New Credit accounts for 10% of your score. This section monitors how often people are taking on new lines of credit. For instance, if you open several new lines of credit at once, it can suggest that you are in financial distress. This makes lenders less likely to loan you money.
Credit Mix – 10%
This category is comprised of looking at the different types of credit that you have. It is good to have more than one type of credit or more than one account because that gives a lender the option to look at how you’ve made payments on a few different accounts.
To improve your credit score, you first have to know what your credit score is made of. We hope that this article helped you on your way to better credit!