Your Credit Score. What Counts and how it's Figured.

Whether you are looking to rent an apartment, buy a home, purchase a car, or sometimes even being hired by an employer – your credit plays a crucial part in whether or not you will be approved. Especially, when buying a home or car, your credit can also affect what you pay in interest on that loan.

Below is some helpful information about credit, what kinds of things affect your credit, and how your credit score is figured.

What is credit?

Credit is a way to borrow money or access goods or services by paying for it later. Your FICO (credit score) score is as unique as each person is. It is based on five areas which are listed above in the graph. Your FICO score has other factors in the algorithm to populate your score which means this score will fluctuate quite frequently.

Why is it important to have a good credit score?

Your score plays a factor in many areas. By having a higher score, you could have a lower car insurance rate, lower the amount spent on security deposits, and the opportunity to have a lower interest rate for loans.

Payment History

Your payment history is the most influential factor in how your credit is determined. It accounts for 35% of your total credit score. So, what do they consider when factoring your payment history?

• Payment information on credit cards, retail accounts, installment loans, mortgages, and other types of accounts
• How overdue delinquent payments are today or may have been in the past
• The amount of money still owed on delinquent accounts or collection items
• The number of past due items on a credit report in public records (e.g. bankruptcy)
• The amount of time that passes since delinquencies, public records, or collection items were added to your report
• The number of accounts being paid on as agreed

Amount Owed

30% of your credit score is defined by the amount you owe on your accounts. Obviously the more you owe, the lower your credit score will be. Here is a look at how the amount you owe affects your credit score.

• The total amount owed on your accounts
• The amount owed on the different types of accounts – usually credit cards have a high impact on your score; installment loans like car payments are second
• The number of accounts with balances
• Your balance vs the credit limit on revolving accounts – accounts like department store credit cards
• The remaining balance on installments loans

Credit History

15% of your credit score is based on your credit history. Making your payments is important but the longer your account is open and paid on-time, the better your score is influenced. Credit history factors include:

• Age of the account – the oldest, newest, and the average of all your accounts
• The last time you used the account

New Credit

Not as big a factor, at 10% new credit can still affect your credit score. It is also important to remember that new credit can lower your credit score just as much as it can help. And, taking on too much new credit too quickly can potentially hurt your credit score. Here are three new credit factors that are considered:

• The number of new accounts you have
• The number of recent inquiries you have
• The date your most recent account was opened

Credit Mix

10% of your score reflects your credit mix. This is a mix between revolving accounts and installment loans or mortgages. It is important to know the breakdown of what accounts impact your credit score.

• Revolving Accounts
  • Credit Cards
  • Retail Store Cards
  • Gas Station Cards
  • Home Equity Loans
• Installment Accounts
  • Home Mortgage
  • Auto Loans
  • Student Loans

Regardless of where your credit score lands on the FICO chart, Mary Rigg’s financial coaches are here to help you. Email Ashley, Elaine, or Norma to schedule a virtual appointment that fits your schedule.