Your credit score in 5 easy steps

March 22, 2012 § Leave a comment

How can you improve your credit score? The exact formula used in a FICO score (Fair Isaac Company, the company that computes credit scores) is a proprietary secret, just like the Colonel’s secret recipe for chicken. But experts say focus on these five areas.

Payment history – 35% of your score is made up of your credit history. Do you pay your bills on time? A lender wants their money BACK, so your repayment history is, naturally, very important to lenders. Pay, at least your minimum, and make the payment on time.

Amount owed- 30% of your FICO score is based on the total amount of debt owed. Owing less than the maximum is good. Not owing debt is good for our coziness factor but since lenders think debt is good, your score may be higher WITH debt than without debt. Debt owed that Is lower than your credit limit provides a better score.

Length of credit history- 15% of your score comes from the length of time you have had credit or a particular account. As far as FICO is concerned, the longer the history, the better for your credit score.

New credit- 10% of your score is based on opening new accounts. And by the way, if you are shopping for a big-ticket item and having many inquiries made into your credit report, quieries within a 14 to 45-day window count as one.

Types of credit- 10% of your score is based on the type of credit. Non-secured, revolving credit (i.e., from department stores) or credit card debt is not as advantageous to your score as installment loans.

Just remember, you are not living your financial life to maximize your credit score. Live you’re the whole of your life with financial prudence.


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