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Credit Score Details Consumers Ought To Know

By Sally Maison
Published: Wednesday, March 17th, 2010

Credit scores have become the credit and loan industry’s magic number, especially now that the economy is at a very weak state and lenders and credit companies are in a very vulnerable position. While many consumers are aware of the importance of credit scores, not as many are aware of the many factors that make up a credit score.

Credit Score Details Consumers Ought To KnowWhile there are other companies that offer credit score calculations, by far the most popular one is the formula being used by the Fair Isaac Corporation or FICO which is why the term “credit score” is often interchanged with the term “FICO score”. To be clear, FICO is does not generate credit reports. Other companies do that. What FICO does is to apply their formula to the credit reports of a consumer so as to generate a FICO credit score for him or her. The formula itself is not released publicly but there are certain details that consumers can keep track of to help them maintain a good credit score.

Perhaps the most important detail regarding credit scores that consumers should know about is just how much weight certain actions have on their credit scores.

Payment history, the record of how timely a consumer pays off his or her debts and whether they have been delinquent in their payments in the past make up 35% of their credit score. 30% of a consumer’s credit score is based on how much of a consumer’s available credit he or she has used. This is basically a measure of how much debt a consumer carries and the available credit he or she has. The length of time that a consumer has carried credit to his name makes up for 15% of his or her credit score. For consumers who have no credit history, this will mean a large negative mark on their credit score.

Applying for new credit cards can also have a negative impact on a consumer’s credit score, especially when he or she applies for many credit card lines in a short span of time. This represents 10% of the overall credit core.  A high proportion of new credit accounts compared to the consumer’s total overall open accounts means that their credit scores will see a drop. However, if the consumer is opening a single new credit card line in an effort to get their credit up, this will result in a positive development in their credit score.

Finally, 10% of a consumer’s credit score is determined by the types of credit he or she is using. It is a good idea to have a varied mix of loans and credit lines. Consumers should, however keep from getting too many credit card accounts as FICO definitely will not see this favorably.

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