It’s good to understand what factors affect your credit (FICO) score. The better you control these factors, the higher your score will be. Your FICO score is based on the following information:

• Payment History – Your payment history determines approximately 35% of your total credit score. This factor looks at whether you pay your bills on time, or late. If they’re late, how late are they? How often do you pay late? How recent are your late payments? How many accounts show no late payments? Have you had accounts turned over to collection or a judgment entered against you? Have you filed for Bankruptcy?
• Amount Owed – How much you currently owe determines approximately 30% of your total credit score. This factor looks at the total amount you owe, and on what types of accounts. How many accounts have balances? How much of the total credit line is owed? How much is owed now in relation to how much you borrowed originally (i.e. for auto loans)?
• Length of Credit History – The length of your credit history determines approximately 15% of your total credit score. In general, a longer credit history will increase your score. This factor also looks at how long you’ve had certain credit accounts, and how long it’s been since you used certain accounts.
• New Credit – Approximately 10% of your score is based on how many new accounts you’ve established. This factor looks at how many new accounts you have, how long it’s been since you opened them, how many recent requests for credit you have made, and the length of time since credit report inquiries were made by potential lenders. Rate shopping should not affect this factor because the inquiries will be made for a particular type of credit during a short period of time.
• Overall Credit Mix – Approximately 10% of your score is based on the overall mix of credit cares, installment loans, mortgage loans, etc. The more balanced the mix, the more likely this factor is to improve your overall score.

You can order a copy of your full credit report once a year for free. Just go to this link: Annual Credit Report. For an additional fee of $7.95, you can see what your credit score is. This is a great step to take so you are aware of what items are on your credit report and how those items affect your score. Be sure to make sure that everything on the report is accurate!

Take care,

Chris Hyde
Chris Hyde, Mortgage Consultant