What Is in Your FICO Score?

FICO score is a key factor that lenders take into consideration when they are deciding whether or not to approve you for a credit card. Good credit is valuable. It shows that you have necessary management skills to control your debt and pay bills on time. Having a low score can give you a hard time to find a profitable plastic that you are eligible for. However, there are no reasons to get disappointed. By understanding the factors that affect your credit score, you will be able to fix and maintain your good credit rating.

The FICO score was developed by Fair Isaac Corporation in 1989 as a means to measure potential credit risk of applicants. Generally, FICO score ranges from 300 to 850. The more points you have - the better. According to the financial researches, only 13% of U.S. residents have scores above 800. The average FICO score is 723.

FICO Score is based on five categories of information in your credit report. The percentages show how important each of the categories is.

Payment History - 35%

This factor has the biggest impact on your FICO score. Payment history includes your payment pattern on different types of accounts (credit cards, installment loans, mortgage, etc.), presence of adverse public records (bankruptcy, judgments, suits, liens, etc.), collection items and delinquencies. Timely payments will raise your credit score, while defaults significantly lower it. The FICO score considers not only fact of delinquencies, but also how long they remain due and how much you owe on delinquent accounts or collection items. The recent late or missed payments hurt your score more.

Amounts Owed - 30%

The second important category is the amount of your debt. Credit bureaus calculate the percentage between your credit card balances and your total amount of available credit.

If you max out your credit limit or don't control your spending, the percentage of debt/available credit (also called utilization ratio) goes up. It will make your FICO score lower. If you have a debt, try to keep it less than 30% of your available credit.

Length of Credit History - 15%

FICO score reflects how long your credit card is used. The longer your credit history is, the more creditworthy you will be considered. Getting multiple new credit cards within a short period of time can negatively impact your score because it reduces the average length of your accounts.

Also pay attention to how long it has been since you used your credit card. Don't expect that having old but idle plastic will fix your credit score: there are no payments to report to the credit bureaus.

New Credit - 10%

This category includes number of recently opened accounts and their types. Credit bureaus also consider number of recent credit inquiries, the time since recent account was opened and the time since credit inquiry was made.

Types of Credit Used-10%

Your score reflects what types of accounts you have had: credit cards, retail accounts, charge cards, and installment loans like car loans or mortgages. Having a healthy proportion of different types of credit will make your FICO score higher. The financial experience with revolving credit, for example credit cards, where you can control how much you spend and pay off each month, has more weight than installment loans with fixed payment scheme.

As you see, your FICO score considers a wide range of information in your credit report. However, it doesn't not consider: your age, race, color, religion, national origin, sex, marital status, salary, occupation, employer or employment history. Any credit cards features, for example interest rates that you are currently paying, are not included as well.