Your credit score plays a big role in shaping your financial opportunities. And whether you’re trying to get a loan, credit card, or better interest rates, lenders pay close attention to your FICO® Score in particular. In fact, FICO® Scores are used by more than 90% of major lenders. In this blog, we explore the components that make up your FICO® Score and break down why it matters in your financial life.
What Is a FICO® Score?
Your FICO® Score is a number that shows how trustworthy you are with credit, helping lenders decide if you’re likely to pay back what you borrow. In other words, a FICO® Score turns a complicated credit evaluation into a simple, easy-to-understand number.
How Is My FICO® Score Calculated?
Your FICO® Score is calculated by considering several factors from your credit history, including your payment history, amounts owed, length of credit history, credit mix, and new credit. These factors are weighed differently and combined to give you a score that ranges from 300 to 850 – the higher the score the better.
Let’s take a look at each of these factors:
Payment History
Your payment history holds a hefty 35% influence on your total score. When you consistently pay your bills on time, it shows that you’re reliable and it gives your score a boost. However, if you stumble with late payments or run into financial hiccups like defaults or bankruptcies, it can put a dent in your score.
Amounts Owed
When it comes to handling credit responsibly, how much you owe takes up a solid 30% of your score. This factor looks at the balance you owe compared to your total credit limit.
Having a lower balance compared to your credit limit demonstrates that you’re not leaning too heavily on credit, and you’re managing your finances well. On the flip side, if your balance approaches your credit limit it could signal to lenders that you’re relying heavily on credit, which might raise concerns.
Length of Credit History
How long you’ve had a credit history is important – it makes up 15% of your score.
Having a longer credit history shows that you’ve been dealing with credit for a while. This longer track record gives lenders a clearer picture of how you manage your financial responsibilities over an extended period.
When your credit history is short, lenders might not have enough information to judge your consistency. So, having a credit history that goes back further can help boost your FICO® Score by demonstrating your financial track record and stability to potential lenders.
Credit Mix
Having a mix of different types of credit is a good thing – and it makes up 10% of your FICO® Score. Showing that you can handle various types of credit, like credit cards, mortgages, and installment loans, can actually make your score better.
When you only have one type of credit, lenders might not have the full picture of how you manage different financial responsibilities. But if you can show that you’re responsible across different types of credit, it can give them more confidence in how you handle your finances.
New Credit
New credit accounts make up 10% of your score. While looking for new credit isn’t necessarily a bad thing, having lots of credit inquiries in a short period could signal financial uncertainty. This doesn’t mean you can’t apply for credit when you need it. It’s just a reminder that too many applications in a short time could make lenders wonder if you’re having some financial difficulties.
FICO® Score Ingredients by MyScoreIQ
Just like a chef combines ingredients to make a great dish, MyScoreIQ shows you the ingredients that affect your overall credit score in a way that’s easy to understand. With this feature, you get a personalized breakdown of what makes up your FICO® Score and the data that goes along with it, so you can see exactly what impacts your score and develop a plan to improve it.
FAQs About FICO® Score Ingredients
What Is a Good FICO® Score?
FICO® Scores range from 300 to 850, with higher scores reflecting stronger creditworthiness. Generally, a score above 670 is considered good, while crossing the 740 threshold is indicative of a very good or excellent score.
Why Is My FICO® Score Important?
Beyond influencing your approval for loans and credit cards, it plays an important role in determining the interest rates and terms you’ll receive. A higher score can unlock more favorable borrowing conditions, potentially saving you substantial sums over time.
How Can I Check My FICO® Score?
MyScoreIQ provides convenient access to your FICO® Score, enabling you to stay informed about your credit health. Monitoring your score through MyScoreIQ can help you track your progress and identify areas for improvement.
What Is My FICO® Score Used For?
Your FICO® Score is used by lenders to evaluate your creditworthiness when you apply for loans, credit cards, or other forms of credit, influencing approval decisions, interest rates, and terms. It’s also considered by landlords, insurers, and sometimes employers to assess financial responsibility, impacting rental agreements, insurance premiums, and certain job opportunities.
How Often Should I Check My FICO® Score?
Regularly monitoring your FICO® Score is a good practice, as it helps you stay informed about your credit health and any changes that could signal identity theft.
MyScoreIQ provides 24-hour automated credit monitoring services. With it, you receive prompt email notifications of any suspicious changes made to your credit file that could signal identity theft. These include:
- New addresses
- New credit inquiries
- New accounts opened in your name
- Late payments
- Improvements to your file
- Bankruptcies
- New employers
- New public records
Bottom Line
In a nutshell, your FICO® Score – made up of your payment history, amounts owed, length of credit history, credit mix, and new credit – carries a lot of weight when it comes to your financial options. Lenders scrutinize it for loans and credit cards, and it even determines the interest rates you’ll face.
Keeping an eye on your score through MyScoreIQ keeps you in the know. With MyScoreIQ credit reporting and its insightful breakdown of your FICO® Score ingredients, you can stay informed and better navigate the path to financial well-being.
