5 Factors That Determine Your FICO Credit Score

5 Factors That Determine Your FICO Credit Score | The Loaded Pig

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Most lenders use the FICO credit score to determine how likely you are to pay off debt. According to FICO, there are 5 factors that contribute to your credit score. It’s important for you to understand the factors that affect your credit score so that you can improve or maintain your score.

FICO Credit Score Factors | 5 Factors That Determine Your FICO Credit Score | The Loaded Pig
5 Factors That Determine Your FICO Credit Score

1. Payment History – 35%

This is the most important factor in determining your FICO credit score. Your payment history is used to predict your future payment behavior. This includes both revolving loans, like credit cards, and installment loans, like mortgages. If you only take one thing from this article it should be that you need to make your credit payments on time. Who would lend you money if they saw that you haven’t made all of your payments on time?

2. Credit Utilization – 30%

Credit Utilization Ratio | 5 Factors That Determine Your FICO Credit Score | The Loaded Pig

This is a fancy way of saying how much credit you use divided by how much credit you have available. So if your credit limit is $10,000 and you use $3,000 then your credit utilization ratio is 30%. Generally lenders want to see a credit utilization under 30%. This means you should avoid maxing out credit cards! Credit utilization is the second biggest contributor to your FICO credit score so it is not something to ignore. If you have made all of your payments on time you can ask to raise your credit card limit, that will improve your credit utilization and ultimately your credit score if you keep your spending at the same amount.

3. Length of Credit History – 15%

The length of time each account has been open as well as the average account age is also considered to calculate your credit score. Lenders want to see that you are able to keep accounts open for a long time. The flip side of this is that if you pay off a student loan or mortgage, your credit score can be negatively affected. Consider this before you close your first credit card that you don’t use anymore – just keep it open instead.

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4. New Credit – 10%

New credit accounts lower the average age of your accounts and thus negatively affect your FICO credit score. Although this only impacts about 10% of your credit score, it’s best to only open new credit accounts when you really need to. Lenders see people who have new credit accounts as riskier.

5. Credit Mix – 10%

The types of credit accounts you have also impacts your credit score. You should have a healthy mix of both revolving accounts and installment accounts. Revolving credit includes credit cards and retail store cards. Installment accounts include mortgages and student loans. Being able to repay a variety of credit accounts shows lenders you can manage your credit responsibly.

If you’ve made it this far then you are most likely interested in improving your credit score or at least understanding the different factors that affect your credit score. That’s a great step. The next step is to implement some of the tips you learned here and continue to monitor your credit score.

Check Your FICO Credit Score

You can get your FICO credit score for free from Experian. It offers access to your Experian credit report and includes credit monitoring and alerts. Experian Boost also enables you to improve your credit score by adding payments that are left out of your credit history, like cell phone, utility bills and even Netflix, to your Experian credit report. The best part is that it’s free!

Bonus: You should check your credit reports each year to ensure all of the information is accurate and dispute any discrepancies. Find out how to get your free annual credit reports in our article.

Did you know that your FICO credit score isn’t the only credit score used by lenders? Learn about the second most common credit scoring model, VantageScore, in our article, FICO vs VantageScore: What You Need To Know About Credit Scores.

Financial freedom begins with good habits.

Rebecca & Tiago, theloadedpig.com

Rebecca co-founded The Loaded Pig with the goal of helping people achieve their financial goals. Her passion for financial freedom has landed her on US News & World Report, CreditCards.com, Cheapism, and many other sites. Rebecca earned her Master of Business Administration from the University of Florida and her Bachelor of Arts from the University of Miami. She is currently a professor in the business department at Broward College.