FICO ratings are comprised of five factors. Numbers are given for each item, and a high score is most favorable. The factors are listed below in order of importance.
1. Payment Rating (totals 35)% of your score) Paying monthly bills on time and in full has the greatest positive impact on your credit score. Late payments, liens and charge-offs all have a negative impact. Missing a high payment will have a more derogatory impact than missing a low payment, and delinquencies that have occurred in the last two years carry more weight than older items.
2. Outstanding Credit Balances (totals thirty% of your score)This factor marks the ratio between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep balances as close to zero as possible, and at least ten% below the available credit limits. (A balance thirty% below the available credit limit is better.)
3. History (totals 15% of your score) This portion of the credit score number indicates the length of time since a particular credit line was established. A seasoned person will always be more efficient in this area.
4. Types of Credit (totals ten% of your score) A mix of auto loans, credit card and mortgages is more positive than a concentration of monthly bills from credit card only.
5. Requests (totals ten% of your score) This percentage of the credit score number quantifies the number of queries made on a consumer’s credit within a six-month period. Each hard query can cost from two to 25 points on a credit score, but the maximum number of queries that will reduce the score is ten. In other words, 11 or more queries within a six-month period will have no further impact on the borrower’s credit score. Note that if you run a credit report on yourself, it will have no affect on your score.
Understanding the 5 factors is important. However, the initial step in this process is ensuring that you possess a latest version of your credit report.
U.S. Congress of late amended the Fair Credit Reporting Act in order for consumers may instantly get one free credit report annually. There are three major credit bureaus: Equifax, Experian, and Transunion. Since records can be different across agencies, you will definitely want to a no charge rating and report from each one of the three agencies.