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CREDIT TIPS

Removing Some of the Mystery About Credit Scoring Compliments of BFS 

A few years ago, Fair Isaac Co., the major provider of credit scoring system to lenders, announced that it would reveal how it determines credit scores, also known as FICO scores.  Many lenders use these scores to predict how likely borrowers are to repay a loan.

 

There are five main factors that influence your FICO score:

 

Payment history

Payment history accounts for about 35% of your score.  Paying your bills on time is the best way for you to receive a high FICO score.

 

Your current debt

About 30% of your score is determined by how much you currently owe.  If you owe a lot of money in relation to your available credit limits, you may appear to be overextended.  The key is keep balances low on unsecured debt such as credit cards. 

Credit history

The longer you’ve had credit and handled it responsibly, the better your FICO score will be.  The length of your credit history accounts for 15% of your score. 

Your credit mix

10% of your score is determined by the kinds of credit accounts you have, credit cards, retail accounts, installment loans, finance company loans and mortgage loans and how many of each.

 

Application for new credit

Applying for several credit accounts in a short period of time could indicate that you may soon be overextended and may lower your score.  This is about 10% of your score.

 

There are other elements, mostly subcategories of the items listed above that go into your score, including your occupations, time at your present job, time at your current address, home ownership and more.