|First thing you should know is that you don’t have just one score, but over 100 of them. These companies take whatever factual data that they can collect on you and use an algorithm to calculate a credit score on you. These credit scores are always evolving and constantly changing. But, the credit score prepared by the Fair Isaac Company (“FICO”) is the market leader in this industry. They command about 75% of the market share of credit scores. There is no way to tell you exactly what goes into your credit score, but after years and years of working with them, the industry has figured out a few things about them.|
|These factors allow you to control your own credit score:|
|Your Payment History typically makes up about 35% of your credit score .|
|This makes sense because your history of paying your bills shows your attitude towards your creditors. According to Fair Isaac, only 3 out of 10 people have ever been late more than 60 days. In terms of payments, your credit score focuses on three factors:Recency. The more recently you have been late with a payment, the bigger hit you take on your score. Its even worse for people with higher credit scores because when they are late with payment, their credit can drop several points more than someone with a mild history of late payments.
Frequency. More late payments on a credit report than fewer, may appear to be a pattern.
Severity. A 30 day late payment is not as bad as a 60 or a 90 day late payment. The more severe the late payment, the greater the damage to one’s credit report.
|How Much you Owe on your accounts.|
|This part of the score looks at not only how much you owe, but what percentage of your available credit that you use. Most Americans only use 30% of their available credit. According to Fair Isaac, only 1 in 7 people use 80% or more of their available credit. You should know that many creditors such as credit card companies report the outstanding balance due to the credit reporting agencies every month, around the same date. Hence, even if you pay your credit card balances in full at the end of the month, if on the reporting date, your balance is close to maximum of your available credit, you can and probably are getting penalized.|
|How Long You have had credit|
|The longer you have had credit, the better. The average American’s oldest account has been established for about 14 years according to Fair Isaac.|
|Your Last Application for Credit.|
|Opening new accounts in a short period of time can penalize your credit score.|
|The Types of Credit You Use.|
|This is a smaller factor in creating your credit score. FICO likes to see a mix of different kinds of credit such as revolving (such as credit card) closed end (like a car loan), and mortgage loans. To achieve the highest score, you need a mix of all sorts of credit.|