What FICO looks at

January 16th 2013

It makes us all wonder what determines our FICO score. However, FICO has remained elusive in all these years to keep us guessing. Recently, some of the secret ingredients of FICO score are out and those who have always wondered about improving their credit score can now manipulate these factors to manage it. Following are the factors that influence your score.

Loan repayment history: It accounts for 35% of your score.

Your score would depend on your past record for both the revolving line of credit (i.e. the credit cards) and installment loans such as - mortgage and car loan. Defaulting on loans, especially on installment loans, would affect your score negatively. So, on-time payment on your loan is one sure way to improve your FICO.

Available credit: 30% importance is given to this factor. The ratio of the total available credit against the balance outstanding should ideally be kept at 30%. Hence, you may wish to change your habit of maxing out your credit cards for more favorable score from FICO.

Length of your credit history: The length of your credit report would account for 15% of your FICO score. It may now explain why young people and people with no credit history find it hard to get credit or are asked to pay higher rates.

It may also explain why it is not a wise idea to close your long standing accounts even when they are in bad shape. This would shorten the length of your available credit history and therefore would affect your score.

Credit Mix: FICO loves to see an assortment of credit in one's report and therefore gives 10% weight to it. Try to maintain a mixed credit report of unsecured as well as secured debt.

However, the idea of opening too many credit accounts is likely to backfire. Hence, avoid opening too many credit accounts within a short period of time.

Frequent credit inquiries may also affect your score negatively. Moreover, it would tell the creditors that you're desperate to get a credit, which would lower your chances of approval.

Now, since that you know what FICO likes to see on your report, you may work on these areas to get a better score.

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