Your FICO credit score is one of the most important numbers in your financial life. This three-digit score ranging from 300 to 850 determines whether you can get approved for credit cards, loans, mortgages, apartments, and more. It also influences the interest rates and terms you’ll be offered.
Understanding what goes into your FICO score is key to managing it wisely and working to improve it over time. While the exact formula used to calculate your score is proprietary, FICO provides general guidelines on the main factors impacting your number.
Read on to learn what’s included in your FICO credit reports, how your FICO score is determined, and steps you can take to build your credit.
What’s in Your Credit Report
Before diving into what determines your credit score, it helps to understand what makes up your credit report. Your report is a detailed record of your credit history maintained by the three major credit bureaus – Equifax, Experian, and TransUnion.
Lenders report information about your accounts to these bureaus each month. This includes data on:
- Credit cards
- Auto loans
- Mortgages
- Student loans
- Personal loans
For each account, your report lists:
- When the account was opened
- The credit limit or loan amount
- Your monthly payment
- Your payment history
- Your current balance
- Any credit inquiries made by lenders
Negative information like bankruptcies, foreclosures, tax liens, wage garnishments, and accounts sent to collections also appear on your report.
This comprehensive overview of your borrowing history offers lenders insight into how responsibly you’ve used credit in the past and how likely you are to repay debt in the future.
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How Your FICO Credit Score is Calculated
While the full details of FICO’s scoring formula are confidential, the company provides general guidance on what factors have the biggest impact on your score. Here’s what you need to know:
Payment History
This category carries the most weight, accounting for 35% of your total score. It shows whether you’ve paid your bills on time each month. Payment history includes data on all credit accounts, including mortgages, credit cards, auto loans, student loans, and retail accounts.
Paying late – even just once – can seriously ding your score. The more recent and frequent the late payments, the bigger the impact on your FICO number. Accounts sent to collections and bankruptcies also dramatically lower your score in this category.
To maximize points for payment history:
- Pay all bills on time each month
- Contact lenders immediately if you anticipate a late payment
- Avoid accounts going to collections whenever possible
Amounts Owed
Also known as credit utilization ratio, this factor represents 30% of your score. It measures how much of your total available credit you’re using across all accounts.
Carrying high balances close to your credit limits is seen as risky by lenders. FICO research found that consumers using over 30% of their available credit were more likely to miss future payments.
To boost your score for credit utilization:
- Pay down balances to decrease the portion of credit in use
- Ask for credit line increases to grow your total available credit
Length of Credit History
This category accounts for 15% of your score. It considers:
- How long your oldest account has been open
- The average age of all your accounts
- When your most recent account was opened
Having a longer, well-established credit history signals lower risk to lenders. Closing old, inactive accounts shortens your history and can negatively impact your score.
Tips for building up this factor:
- Keep your oldest accounts open by using them periodically
- Allow accounts to age rather than opening a flurry of new ones
New Credit
Making many credit applications in a short period can raise red flags with lenders, so new credit makes up 10% of your score. Hard inquiries when you apply for loans or credit cards can lower your score temporarily.
However, comparison shopping for a mortgage or auto loan within a limited window is counted as just one inquiry. Opening several new accounts at once also signals greater risk.
To minimize dings for new credit:
- Space out loan and credit card applications over time
- Comparison shop for big loans within a short timeframe
- Let new accounts age before opening more
Credit Mix
This factor, making up the final 10% of your score, considers the variety of credit types in your history – including credit cards, retail accounts, installment loans, and mortgages. Managing different types of credit demonstrates experience as a borrower.
To improve your mix of credit:
- Open credit cards if you only have installment loans
- Consider a personal loan to add to credit cards on your report
- Don’t open accounts you don’t need just to boost this factor
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How to Check Your Credit Reports and Scores
Now that you understand the key pieces of your credit history and how they impact your FICO score, it’s essential to monitor your reports and scores. This allows you to spot any errors or red flags that could be dragging your number down.
You can get a free copy of your credit report from each of the three major bureaus once every 12 months at AnnualCreditReport.com. Reviewing reports from all three is important since the data each bureau has may vary slightly.
Many credit cards, banks, and personal finance sites also offer free access to your FICO score or educational credit scores. For example:
- Discover provides a FICO score for free on credit card statements
- Bank of America offers a monthly TransUnion FICO score through online banking
- Sites like Credit Karma give free VantageScores to monitor
For a one-time detailed look, you can purchase your FICO scores directly from MyFICO.com. This costs $19.95 for your scores from all three bureaus, plus additional insight into factors impacting your number.
Checking your reports and scores regularly is vital for staying on top of your credit. Spotting and disputing any errors can boost your number. And monitoring can alert you to potential identity theft if unknown accounts appear.
How to Improve Your FICO Credit Score
Now that you know what goes into your score, you can take the right steps to give it a boost:
Pay bills on time. Set up autopay or payment reminders to avoid missed payments. Pay off balances in full each month if you can.
Lower balances. Pay down balances below 30% of credit limits, especially on cards with high utilization. Consider making extra payments to pay down balances faster.
Leave old accounts open. Keep longstanding credit cards open and active to preserve your length of credit history. Use them periodically to avoid closure.
Limit new accounts. Space out new credit card and loan applications over time. Too many new accounts at once raises risk.
Correct errors. Dispute any inaccurate information on your credit reports that may be dragging your score down.
Check scores often. Monitor your FICO score regularly so you can catch issues quickly and work to improve it.
With patience and smart credit habits, you can build your FICO score over time. A higher score saves you money through better loan terms, so it’s worth the effort.
Frequently Asked Questions About FICO Scores
Still have questions about what goes into your credit score and how to build it? Here are answers to some commonly asked questions:
What is a good FICO credit score?
FICO considers scores from 670 to 739 to be good. 740 to 799 is very good, and 800+ is exceptional. But every lender sets their own criteria, so focus on steadily improving your score rather than chasing a specific number.
Does checking my own score hurt it?
No. Checking your own FICO score has no impact. Only inquiries made by lenders when you apply for new credit may temporarily ding your score.
How long do late payments impact my FICO score?
Late payments remain on your credit report for seven years, but their impact on your FICO score decreases over time. Recent late payments hurt more than those over a year old.
Should I close old credit cards I don’t use?
Generally no, since closing accounts shortens your length of credit history and can actually damage your score. Use old cards periodically to keep them active.
How many credit cards should I have to improve my score?
There’s no magic number, but having three to five well-managed credit cards can help by growing your total credit limit and mix of accounts. Focus on using cards responsibly, not getting more.
If my score is low, how fast can I improve it?
With diligent credit habits – paying bills on time, lowering balances, checking reports often – you may see your FICO score begin improving in just a few months. However, increasing a very low score by 100+ points can take a year or more.
Does getting married change your credit score?
Marriage itself has no direct impact, but actions like adding an authorized user, opening or closing joint accounts, or combining finances can alter your credit profile and scores for both spouses.
Conclusion
A strong FICO credit score saves you money every time you borrow for a credit card, loan, or mortgage by qualifying you for better rates. Understanding exactly what goes into your score empowers you to make smart financial choices that support your number.
While improving a very poor score takes diligence and patience, you can take charge of your financial health. Monitoring your credit reports and scores gives you valuable insight. Paying bills on time, limiting new accounts, lowering balances, and correcting errors help increase your odds of an approval down the road.
Your FICO score doesn’t have to be a mysterious three-digit number holding you back. Knowing what impacts it and consistently practicing good credit behaviors will help strengthen your financial foundation over time.
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