Credit Scores

We all know credit scores are extremely important.   They can determine the interest rates we get on loans, the amount of new accounts we can open, and even could affect purchasing a house.  So what determines your credit score and how can you make sure your credit score doesn’t get damaged.  Well, the unfortunate truth is, no one knows the exact method FICO uses in determining your credit score, however there are a few factors that have been made public. 

The first thing we know is that 35% of your total score is based on your payment history.  This means if you want to keep a healthy credit score, don’t miss any of your payments!  Another 30% of your score is determined how much debt you have versus how big your credit line is.  A general rule of thumb is to never have over 50% more debt over credit available to you.   For example, if your credit limit was $1,000, you would never want to exceed your credit past $500.   15% of your credit score is determined by how old your accounts are.  The older your accounts the better.  This is why you might want to reconsider opening up new account just to receive a 10% discount off a purchase at a department store.  Also, even if you are not using your credit cards, keep the accounts open anyway.  This also relates to the next 10% of your total credit score.  The more cards you apply for, the lower your score will go.  So again don’t apply for every card you see!  And the last 10% of your credit score is a complete mystery.   However, Yahoo.com compiled a list of 30 factors that could affect this final 10% of your credit score, and that list is as follows. 

  • Delinquency on accounts.
  • Too few bank revolving accounts.
  • Too many bank or national revolving accounts.
  • Too many accounts with balances.
  • Consumer finance accounts.
  • Account payment history too new to rate.
  • Too many recent inquiries in the last 12 months.
  • Too many accounts opened in the last 12 months.
  • Proportion of balances to credit limits is too high on revolving accounts.
  • Amount owed on revolving accounts is too high.
  • Length of revolving credit history is too short.
  • Time since delinquency is too recent or unknown.
  • Length of credit history is too short.
  • Lack of recent bank revolving information.
  • Lack of recent revolving account information.
  • No recent non-mortgage balance information.
  • Number of accounts with delinquency.
  • Too few accounts currently paid as agreed.
  • Time since derogatory public record or collection.
  • Amount past due on accounts.
  • Serious delinquency, derogatory public record, or collection.
  • Too many bank or national revolving accounts with balances.
  • No recent revolving balances.
  • Proportion of loan balances to loan amounts is too high.
  • Lack of recent installment loan information.
  • Date of last inquiry too recent.
  • Time since most recent account opening too short.
  • Number of revolving accounts.
  • Number of bank revolving or other revolving accounts.
  • Number of established accounts.
  • No recent bankcard balances.
  • Too few accounts with recent payment information.
  • Balance on account is too high.

Remember, knowing is half the battle here.  If you familiarize yourself with the advice above, and stay responsible when it comes to your credit, you will be guaranteed to maintain a healthy credit score.