How is your Credit Score (FICO®) formulated?

Your credit report contains different types of information that is used to calculate your credit score. No one knows exactly how your credit worthiness is calculated but the Fair Isaac Corporation (FICO ® ) page gives a very good idea. This graph reflects how important each of the categories that affect your score is.

The most important is your payment history (Payment History)

payment history

35 percent of your score is calculated according to how you have fulfilled your obligations in the past. This takes into account what type of debts you have, how long the account has been unpaid, how many accounts are in a state of crime or in collection and the number of accounts that are being paid as agreed. This is the part of your score that is very difficult to change if it is in poor condition because if you missed a payment on your card, it will continue to affect you for several years. That is why it is very important to fulfill all your payments without fail.

Amount you owe (Amounts owed)

Amount you owe (Amounts owed)

Another 30 percent has to do with the amount you owe in respect to the amount of credit you have. Here you will consider how many obligations you have and really how much money you have to meet your future obligations. The most important factor, and which you have a little more control is the ratio between the credit limit to the amount you owe (debt to limit ratio). This is a very easy formula where you divide the balance of all your accounts among the total limit of them. To have a good score in this category it is always recommended that you do not owe more than 30% of your limit.

Age of your credit history (Length of Credit History)

15 percent of your score is affected by the time you have establishing credit. This factor is important to take into account when you want to open a new credit. Each time you establish a new credit this percent will be reduced. That is why it is very important that you do not accept credit cards just because they offer it to you in a store or by mail; Just have the cards you really need and keep them in good condition for a long time.

New Credit

Another 10 percent is directly affected by accounts that have recently opened. This also takes into account the times that a company or bank reviews your credit report when you apply for the credit. It is advisable not to have more than 7 credit reviews in a period of two years. Make sure you only apply for cards that you really need, if not, this will also affect your score.

Types of credit used

Essentially there are two types of credits that you can use: The lines of credit which are the accounts that when you finish paying the balance you can use it again, like a credit card; and bank loans, which you have a fixed amount to pay every month and when you finish paying it you don’t have access to those funds, such as a mortgage or a car loan. It is important not to have many accounts of one or the other but a mixture of the two.

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