Improving your credit score can be an important step in the homebuying process. Not sure where to begin? Knowing the various weights given to each component of the commonly used FICO® Score will help you identify any areas that may require improvement. As of Oct. 15, 2019, myFICOTM, a Fair Isaac Corporation website, listed five key factors that go into calculating your FICO Score.1 Let’s take a look at those factors and some key insights from myFICO:
Payment history: Do you make your payments on time? This is 35% of your FICO Score and the most important factor. Late payments can negatively impact your score because it demonstrates that you may be likely to miss payments and possibly default on a loan.
Amounts owed: Your level of debt versus credit utilized is 30% of your FICO Score. This factor shows how much of your available credit you have borrowed. A higher debt-to-credit ratio can negatively impact your score because it indicates that you may be maxing out your total available credit, which can be a leading indicator of taking on too much debt.
Length of credit history makes up 15% of your FICO Score. How long have your credit accounts been open? If your accounts haven’t been open for long, your score will be lower because there isn’t as much history for a lender to look at, which could indicate you may not be as likely to meet all required payments.
Credit mix makes up
10% of your FICO Score. This includes installment loans, mortgages, revolving accounts and unsecured debt. Having a variety of credit products may demonstrate you can manage different types of debt and indicate you could be less risky.
New credit makes up 10% of your FICO Score. A higher number of recent credit inquiries (or times you’ve applied for new credit) indicates you may be shopping for credit and obtaining new loans that aren’t currently shown on your credit report – and you may be taking on too much debt at once.
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1“What’s in my FICO® Score,” Credit Scores, myFICOTM, accessed Oct. 15, 2019, myfico.com/credit-education/whats-in-your-credit-score.