Your Credit Score

Answer 1

Your credit score, also known as your FICO score, says a lot about you. So much so that many employers will look at your FICO score to try to determine your level of overall responsibility. If you’re responsible with money, the thinking goes, you’ll be more likely to be a generally responsible employee. In addition to employment, your FICO score can control your financial destiny. Whether you’re able to finance a car, mortgage a home, or even qualify for monthly billing with your utility companies can be dictated by your FICO score. With all that’s at stake it’s important to understand what goes into computing your individual score and how you can best manage it. While the exact algorithm for calculating FICO scores is a closely guarded secret, FICO (formerly known as the Fair Isaac Corporation) has disclosed the components to the score. They are as follows: 35%: Payment history 30%: Credit utilization 15%: Length of credit history 10%: Types of credit 10%: Recent searches for credit If you want to make a measurable increase to your credit score I highly recommend concentrating on the first two areas. Together these two components have the highest weighted impact on your overall score. So let’s delve into what is meant by payment history and credit utilization. Payment history is simple to understand. Did you pay your bills? Did you pay them on time? That’s pretty much all there is to it. If you want to improve your credit start paying all your bills and debt payments on time. Most people who end up with a less-than-favorable FICO score do so because of late payments. It never ceases to amaze me how some people just don’t treat their bills as the obligation they are. When you use utilities or purchase something you need to pay for it. If you don’t, you will earn a reputation as someone who is a bad credit risk. Credit Utilization is a fancy way of saying that FICO is looking at how much of your available “revolving debt” you’re using. They look at the ratio of how much of your available lines of credit you’re carrying as debt. If you have a $10,000 line of credit or a credit card limit, and you’re only carrying a balance of $3,000, your credit utilization ratio will be much favorable than someone with the same limit carrying an $8,000 balance. The bottom line is that if you want to improve your credit score: pay all your bills and debt payments on time, and carry a relatively small balance compared to your available credit limit.