by Caton Hanson

FICO scoring is used by lenders to figure out what your interest rate will be on loans you apply for. If you’re buying a house the types of mortgages available to you are based on your personal credit score.

The score is based on the system developed by Fair Isaac Company (FICO) and the interest you pay, as well as monthly payments that are based on your personal credit history and score as well.

Same with a car loan, there is always a premium on car insurance or even homeowners insurance. Your FICO credit score can affect what your rate will be be. Your FICO score can even affect your chances of employment.

There are a lot of things that go into FICO scoring and we will group that into about five categories.

In each category, we will include a percentage that reflects the importance of each when determining personal credit and calculating a score.

Payment history (35%)

Your payment history is the largest factor in determining FICO scoring. This includes the number of unpaid bills you have, any bills sent to collection, bankruptcies etc. The more recent the problem, the lower your score.

Outstanding Debt (30%)

How much of the total credit line is being used on credit cards and other revolving charges? High balances or more precisely, balances that are close to your credit limit can negatively affect your credit score. Most lenders think 40%-60% of maximum is ideal.

Length of your credit history (15%)

This one surprised me. Just length of history. How long have you had an open credit line. If you have a large credit limit and it has been paid as agreed over a long period of time, this will work the best. Close your old accounts if they are having a negative affect on you.

Recent inquiries (10%)

Any time you apply for something that requires credit, the other party with pull your credit score. Some are soft pulls and some are hard pulls meaning some won’t pull quite as much information and will have little to know affect. Others will. A soft pull would be checking your own personal score or report.

Type of Credit (10%)

How much is still owed on current mortgage loans, credit cards and finance companies compared with the original loan amounts? Also it’s important not to open a number of new credit card accounts just to increase your available credit. It will have the opposite affect and lower your score.

About the Author:
Visit Caton Hanson, who is an expert in FICO Scoring: SBFC Law Group or SBFC’s homepage at SBFC Law Group Home.