What is a FICO score?

Your FICO (Fair, Isaac and Company) score is your credit score that is calculated with exclusive formulas and algorithms using the data from your credit report. If you are wondering “how is your credit score determined?” Then have a look at the factors that contribute to your FICO score below:

How is Your FICO Score Calculated? – 5 Determinants:

#1: Your Payment History

This is the most critical factor when calculating your credit score. It’s important that you always pay your bills on time, or if you’re unable to, extend them as necessary. Late payments, specifically 30 days late or more, you’ll be putting a big dent in your credit score. To give you an idea of the importance of payment history, it accounts for around 35% of your credit score.

#2: Balance to Limit Ratio

This one is the second most important factor when calculating your credit score. The balance refers to the amount of money you owe to your various creditors, and the limit is the amount of money you can spend. For instance, if you have spent $500 out of your total credit card limit which is $5000, then your balance here is $500, and your limit is $5000. So you can calculate your balance to limit ratio by dividing the balance by limit and multiplying the answer by 100 which is 10%. Generally, less than 30% Balance to Limit Ratio is considered ideal when calculating your score. This one accounts for 30% of your FICO score.

#3: Credit History Length

This one just means the length of time each of your accounts have been open and the amount of time that has passed since you used your account. The longer your credit history, the better your credit score will be. In general, credit history length accounts for around 15% of your FICO score.

#4: Your Recent Activity

Your recent credit activity refers to things like if you have applied for any credit in the last three to six months and whether you have paid any credits in this time. If you have taken frequent credits in this period, then it usually means that you are under financial pressure and that may make the people calculating your credit score a bit reluctant. Your recent activity generally accounts for 10% of your FICO score.

#5: Credit Mix

Credit mix means the different types of credits such as loans, mortgages, credit cards etc. you have. If you are managing all of these accounts responsibly and making payments on time, your FICO score will increase. Credit mix accounts for 10% of your FICO score.

Final Words
It’s not that hard to understand what accounts for your FICO score if you know about the five determinants mentioned above. Keep making payments on time, manage your credit accounts properly and don’t apply for credit frequently if not necessary and you should enjoy the benefits of a good credit score.

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