These are five metrics used to calculate your FICO score, along with the value each contributes to your score:
- 35% Payment History
- 30% Amounts Owed
- 15% Length of Credit History
- 10% Type of Credit Used
- 10% New Credit Enquiries
How do you build or improve your personal credit score?
Focus on these seven issues to build and strengthen your personal credit score. These are listed in order of importance.
1. Serious Delinquencies & Derogatory Items
As you might expect, some late payments have a larger impact on your FICO score than others. Your score is most impacted by delinquencies 60 days and over. And, the more delinquent, the more impact they have on your score. In addition, major delinquencies, bankruptcies, judgments and other similar derogatory accounts on your personal credit report will impact your personal credit score on a greater scale.
2. Revolving Utilization
Most lenders don’t look for a specific maximum debt to income ratio, but maintaining a ratio below 38% (including your mortgage) is considered a good practice. Basically, if your revolving debt, like credit card debt, department store credit cards and other revolving debt, is always maxed out to the limits, it will negatively impact your personal FICO score. Try not to utilize all the credit that is available to you on your accounts. Next, make all your loan payments on time, this is the best way to build a strong personal credit score.
3. Minor Delinquencies
It happens–most of us experience times when we miss or are late with payments on our accounts. If you are on a threshold between a fair and good score, minor delinquencies may impact your score, but if you don’t allow them to go 60 days, they won’t damage your FICO score as much. Furthermore, after 12 months of staying current, minor delinquencies will not have any effect on your score.
4. Length of Credit History
Longer credit history will help your score. Bottom line, the longer your track record of good credit practices, the more positive impact on your score. Thus, shorter credit history doesn’t provide enough track record to positively impact your credit score.
5.Thickness of Your Credit File
This is related to the length of your personal credit history. If your credit history includes a number of different types of credit over a long period of time with a reasonably good track record, it will greatly help your profile.
6. Recently Opened Credit Lines
Opening new credit accounts is not a big issue. However, opening a lot of accounts within a short period of time could raise a red flag.
7. Credit Inquiries
Just as opening a lot of new credit accounts, several inquiries in a short period of time could hurt your credit score. However, it will only make a big difference if your score is on the threshold of fair to good credit.
Most people put far too much weight on the impact of inquiries on their personal credit score. It’s way more important to focus your efforts on addressing delinquencies and watching over your credit utilization. This will provide you the best results in terms of building a higher score you will be proud of.