Your Credit: FICO Score

Micheal Laurance  The Wealth Coach

     Your FICO score, or credit score, is a vitally important number.  Generally, the scores range from 350 to 850 with a high score indicating higher credit worthiness.  As we discussed, this can be essential so you pay less on loans, get lower insurance rates, and the like.  The score is a risk snapshot to lenders that is “empirically derived and statistically valid” by the folks at The Fair, Isaacs Company (FICO).

Past payment history: makes up about 35% of your total score.  Key factors include late payments, delinquencies and bankruptcies. The fewer late payments you have, the better your score -- though a recent late payment hurts more than one from five years ago.

Outstanding debt: makes up about 30% of your total score.  This is, among other things, what you owe on credit cards and installment loans, compared with the original amounts of the loans. Someone who uses a high amount of available credit will have a lower credit score than someone who uses less of the available credit.  This holds true on individual lines (credit cards) as well as in total.

How long you've had credit: accounts for about 15% of your total score.  This is referred to as the “thickness” of your file.  This is why, if you are closing out old accounts, it is best to keep long-standing credit cards open, even though you may not use them.

Inquiries:  New applications for credit accounts for about 10% of your score.  It stands to reason that someone constantly searching for credit, or opening up many accounts in a short period of time, would present a greater risk (thus they get a lower credit score), than someone who is not adding credit availability.