Know your credit score and what makes your credit score

Benjamin.Klar@usmortgage.com

www.KlarMortgage.com

Direct (207) 514-0753

How Your Credit Score is Compiled
Most people know that they have a credit score and that they can even get theirs for free. However, many people don't know how their credit score is compiled. Knowing this will help you decide the best ways to manage your financial affairs while focusing on having strong credit and a strong credit score.

What is FICO?

The FICO score is the most widely used credit score model in the country. It is named after Fair Isaac Corporation, who devised this statistical model to help inform lenders. Your FICO score helps financial institutions decide your credit worthiness and can affect everything from your ability to secure a loan to the rate of interest you will pay upon qualifying for that loan.

The three major credit bureaus each have their own version of credit scoring, which means that you actually have not one, but three FICO scores. While your score will vary based on how the bureaus compile their data, the five major components that make up your score are consistent. Here is a typical weighting of those components for the population at large.

Here is the breakdown

35% Payment History
The good news: Paying bills on time is good. The bad news: Missing payments can really sting. If you tend to miss payments, you may want to consider signing up for automatic bill pay to ensure payments are made in a timely fashion.

30% Amounts Owed
An assessment of how much you owe (on mortgages, equity loans, credit cards, car loans, etc.) and how much credit you have available. For example, if you have five credit cards and each has a $20,000 limit, you have $100,000 in available credit. The bureaus are looking for a responsible and low % use of that available credit.

15% Length of Credit History
The longer you've had credit, the better your score will be. If you've had credit with the same issuers for lengthy periods, even better. Jumping around from card to card is not good for your score.

10% New Credit Accumulation
The credit bureaus look at the number of accounts you've opened recently, the number of credit inquiries made about you by creditors and the time that has elapsed since those inquiries.

10% Types of Credit Used
This is the mix of the types of credit you have. Typically, a mix of revolving credit (credit cards) and installment loans (mortgages, car loans etc.) indicates that you know how to manage your financial affairs.