Many people don’t know how their credit score is calculated at all. Here is a guide for the FICO score of yours and what pieces add to the score value. FICO Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories. The percentages in the list below reflect how each of the categories affects your FICO score.
- Payment History | 35%
- Money Owed | 30%
- Length of Credit History | 15%
- Newly assigned Credit | 10%
- Type of credit | 10%
These percentage values are based on the importance of the five categories for the general population in the United States. However, keep in mind that this is not “once size fits all”. Additional factors can come into play. As an example – for particular groups (Example: people who have not been using credit for very long) the importance of these categories may be somewhat different. Sometimes it is better to have less than stellar credit than no credit history at all. Bad credit can be explained while no credit history at all lets the lender guess how good or bad your financial behavior is and the risk might be deemed too high. The result would be denied credit for you.
Before applying for credit somewhere it is important to know what your credit score is. While you entitled to a free annual credit report, these reports do not include the credit score. I usually recommend to combine things by signing up for a credit monitoring solution. The different service providers not only monitor your credit report, they also provide you with free access to your credit scores across all 3 major credit bureaus. This information is good to have as it lets you determine if it makes sense to delay a credit application and rather do something that boosts your credit score first.
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