Your FICO credit score is one of the most common ratings used to determine your creditworthiness. Let’s break down how it’s calculated.
The 5 factors that influence your credit score:
1. Payment history
Making consistent, on-time payments is critical. A missed payment can stay on your report for 7 years. Set up automatic payments or due date reminders.
2. Amounts owed
The more you owe, the more it can affect your score. Reducing your outstanding debt is the quickest way to improve your score. Keep your “credit utilization” low by not overusing credit cards.
3. Age of accounts
Lenders look at the average age of all your accounts combined. The longer you successfully maintain an account, the more it helps.
4. New credit applications
“Hard inquiries” can temporarily drop your score when applying for loans. Space out new credit applications to avoid negative consequences.
5. Types of credit used
Lenders like to know you can handle different types of credit. Student loans, a mortgage, auto loans, and credit cards can all build credit. Using just one type of credit or not having any history limits your score.
If you need to improve or repair your FICO credit score, your first step should be to check your credit report for errors. You can request a free copy of your credit report from all three credit bureaus once a year at annualcreditreport.com. If you find any errors, dispute them directly with the relevant credit bureau. Then, get to work on boosting your score by practicing good credit habits.
For more, see how to easily avoid these 5 common credit score mistakes.
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