What’s in your FICO® score
FICO Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining your FICO score.
These percentages are based on the importance of the five
categories for the
general population. For particular groups - for example, people who
have not
been using credit long - the importance of these categories may be
somewhat
different.
How to improve and maintain credit scores
We
all want to have a credit score of 700 or more,
so let’s learn a few basics on how to achieve it and maintain it. The
difference between a 700 score versus a 580 score could mean $400 - $500 a month
on a
purchase of $500,000 or more! First of all, obtain your credit report at
least
on a quarterly basis. A good way to do this is through a financial
or mortgage consultant. Here you'll find out what constitutes your credit score and
what we
can do to build it up.
Any good information will stay on your report indefinitely. However, if you do not use the account, the information will cycle off every 7 years. A closed account will still stay on your credit report for 7 years. Most negative information stays on your report for 7 years from the date it was paid or charged off. Bankruptcies and Public Records stay on for 10 years. Most inquiries will stay for up to 2 years.
Payment History
Any late payments or current payments
show up here. If you plan to pay off a
collection, judgment or tax lien account, it will actually lower your
score in
the short term. It is advisable to wait until the close of escrow to pay
those
off. Any late payments in the past 12 months will really lower your
score. This
category accounts for 35% of your score.Outstanding Debt
Total amount owed divided by your credit limit. This is your "total percentage of availability". The higher this availability is the higher your credit scores will be. Keep your revolving debt below 35% of your credit limits. Zero debt is better. Having no revolving credit is not good because you will have NO credit scores. Often times, lenders require 3 trade lines with at least one that has a $2,000 limit. This category accounts for a whopping 30% of your score!
Credit History
This relates to the age of your accounts. The older the account, the better it is to use. DO NOT close any revolving accounts especially during the home loan process, as this may drop your credit score. This category accounts for 15% of your credit scores.
New Credit
Applications for new credit account for 10% of your
score. Try to keep your
accounts to a maximum of 4 major credit cards (visa, mastercard, discover, etc). During a mortgage loan process DO NOT apply
for credit cards, furniture store or electronic store credit offers
that
have better than usual terms. If
anything,
wait until the close of escrow to do these things. Your lender may pull
your
credit again even after they approve your loan! Types of credit in use
Having a good mix of types of credit is good; such as a mortgage, a car loan, and 4 credit card accounts. This accounts for 10% of your credit score.
