FICO SCORES & CREDIT SCORES

The terms FICO score and credit score are usually used interchangeably. This score is made up of many different pieces of credit data from your credit report.

There are five categories that agencies look at. About 35% of your score is from your payment history. A lender wants to know if you have paid your past debts off and on time. This is the most important factor in your FICO score.

Second, 30% of your score will reflect the amounts you owe. Banks want to assess if you are overextended and if you are at risk of defaulting. This debt to income ratio is very important.

Third, 15% of your score looks at how long you have had your credit accounts open and established. The history of your credit isn’t everything, but it can impact your score a little.

Next, creditors will be looking to see the mix of credit that you have open such as credit cards, retail accounts, loans, and mortgages. This will not make or break your FICO score but it can help to have a variety of loans with a good payment history. A credit mix will account for 10% of your score.

Finally, the last 10% of your score is looking to see how many new credit accounts and inquiries you have had within the past 12 months. Be careful not to apply for too many loans, too rapidly, as this will show up on the credit search.

FICO scores help lenders determine if you are going to be a dependable borrower in a fair, mathematical way. A good score may help you qualify for higher amounts, at lower interest rates, with favorable loan terms.

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