How is your FICO Credit Score Determined?

You’ve heard the term. But what exactly is FICO? FICO stands for The Fair Issac Company that developed a methodology to help companies understand a person’s credit risk based on a set criteria. This is one of the main standards used by the three credit reporting agencies; TransUnion, Equifax and Experian. Your FICO score is your credit score.

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How is your FICO score determined?

There are several factors used to determine your FICO score. Each is important for you to know and to know how to preserve.

Payment History accounts for 35% of your score. This is based on your payment history, how you pay your bills, on such things as credit cards, retail store charge cards, installment loans. Also included in the analysis are late payments, how long they’ve been past due and if there are any collections on record. To maintain your score; pay your bills on time each and every month.
Outstanding Debt makes up 30% of your score. You’ll want to try to keep your utilization at 25% or less of your total available credit. If you add up all of your available credit between credit cards, lines-of-credit and charge cards and take 25% of the total that is be the total of outstanding debt you should carry.
Length of Credit history is 15% of your score. Lenders are looking at borrower’s length of credit; how long they’ve had credit. You may have retail store charge cards that you’ve had for a long time that you’ve paid off and no longer use. Don’t be tempted to close those accounts. The length of time you’ve had that accounts helps build your score.
Types of Credit make up 10% of your score. This measures the ‘mix’ of your credit. Mortgages, home equity loans and lines-of-credit, installment loans, revolving credit, are all factored in to a healthy mix of credit. Avoid opening any news types of credit just improve your mix.
New Credit accounts for 10% of your score. Close to 10% of your score is based on how many new accounts you’ve established and items reviewed are: number of accounts; length of accounts; recent requests for credit and length of time between lenders inquiries.

Ways to Improve Your FICO Score

Start with the basics. Pay all of your bills on time. Remember payment history represents the biggest factor in your score. Then reduce your overall total debt. Try to bring your debt down to 25% of your total available credit.

Centra Credit Union is always available to answer questions you may have about mortgages and other types of loans and credit cards.