If you’re on the hunt for information that can better help you on your credit-improvement journey, you’ve come to the right place! Your credit score is full of ingredients, and there are certain ingredients that take up a larger portion of this recipe than others.
Below, we’ve provided a breakdown of each category and how they can affect your score:
- Payment History: 35% of your FICO score. You will gain points by making regular, on-time payments. On the flipside, since this is the largest factor in your score, late payments can be detrimental to your credit score, especially if any accounts are reported to collections.
- Amounts Owed: 30% of your FICO score. This factor is primarily looking at how much of your credit limits are being used. You can gain points by reducing the balances on your accounts. However, if your balance is nearing your credit limit or you max out an account, this will negatively affect your credit score. We recommend keeping your balance at 30% or less of your credit limit.
- Length of Credit: 15% of your FICO score. You will gain points by having a lengthier credit history. This factor takes into account the age of your oldest account, your newest account, and the average age of all accounts. If possible, do not close any unused accounts. Since your score can be affected by the age of your accounts, closing accounts can negatively impact your score.
- New Credit: 10% of your FICO score. You can lose points due to hard inquiries, which are initiated anytime you apply for credit. Ideally, you want to limit the number of hard inquiries you receive within a twelve-month timeframe. Hard inquiries can remain on your credit history for up to two years, but they lose their effect after one year.
- Types of Credit: 10% of your FICO score. You will gain points if you have a variety of accounts reflecting on your credit, such as having both revolving lines of credit and installment accounts. You can lose points by having too many accounts of each type. You can also lose a significant amount of points in this category if any accounts go to collections.
As a final tip, review your credit reports at least once a year. You can pull these for free from all three credit bureaus at www.annualcreditreport.com. By consistently reviewing your report, you will be able to check for any errors or inaccuracies that could be impacting your score and have those corrected. This will also help you keep tabs in case you see accounts you are unfamiliar with or believe yourself to be a victim of identity theft.