What FICO score really means for you and why should it matter?
There’s a useful writing thing of sorts from me at the awesome MindfulWithMal! If you love the 4 big Fs (fashion, fun, food, and frugality) then indulge below! Mmm, financial freedom.
(( Click here to read more ))
Here’s a snippet 🙂
A FICO score is not going to discriminate based on age, race, religion, gender, or bubble gum flavor. FICO will not be influenced by your location, your income or any legal position you are in. A FICO score is made up of only these 5 things:
35% payment history
This is the most important content of your FICO score. It is based on how trusted you are to repay money that has been borrowed.
- Have you paid your bills on time? How often did you miss payments? How long were you late on those payments? Are there any red flags on your account such as bankruptcies, liens, and foreclosures?
30% credit utilization
This part is the funky part and I agree with Dave Ramsey that this is your “I <3 debt” score. It’s a business yeah? They want you to use your credit line because at the end of the day, you have to pay it back. It’s your relationship with debt that makes up 30% of this score.
- How much does the debt you owe compare to your overall credit limit? How much mortgage and/or auto loan debt do you owe?
15% length of credit history
This is simply just how long you’ve had those lines of credit open. After you’ve pay off long term credit card debt, industry professionals typically advise you to keep the account open even if you feel tempted to close it. This is because of this 15% length of credit history to your FICO score. Credit is big business right? They want to keep you as a customer by keeping those lines of credit open so someday, you can return as a customer.
10% new debt
This is simply how many lines of credits have you recently opened. When lenders see a dramatic increase in new lines of debt, your FICO score is knocked down because you are now carrying more liabilities without a history on them.
10% mix of credit
What type of debt do you have (car loan, mortgage, construction loan etc.)