The most important factor of your FICO® Score☉ , used by 90% of top lenders, is your payment history, or how you've managed your credit accounts. Close behind is the amounts owed—and more specifically how much of your available credit you're using—on your credit accounts. The three other factors carry less weight.
Most important: Payment history
Your payment history is one of the most important credit scoring factors and can have the biggest impact on your scores. Having a long history of on-time payments is best for your credit scores, while missing a payment could hurt them.
FICO® Scores☉ are used by 90% of top lenders, but even so, there's no single credit score or scoring system that's most important. In a very real way, the score that matters most is the one used by the lender willing to offer you the best lending terms.
The primary factors that affect your credit score include payment history, the amount of debt you owe, how long you've been using credit, new or recent credit, and types of credit used.
Companies use credit scores to make decisions on whether to offer you a mortgage, credit card, auto loan, and other credit products, as well as for tenant screening and insurance. They are also used to determine the interest rate and credit limit you receive.
Reasons why your credit score could have dropped include a missing or late payment, a recent application for new credit, running up a large credit card balance or closing a credit card.
Open vs.
First, credit can come in two forms, open or closed. Open credit, also known as open-end credit, means that you can draw from the credit again as you make payments, like credit cards or lines of credit.
Credit score is also another C that is used for determining small business loans. For The Commercial Finance Group, we've narrowed it down to two C's: character and collateral.
Character and capacity are often most important for determining whether a lender will extend credit. Banks utilizing debt-to-income (DTI) ratios, household income limits, credit score minimums, or other metrics will usually look at these two categories.
Students classify those characteristics based on the three C's of credit (capacity, character, and collateral), assess the riskiness of lending to that individual based on these characteristics, and then decide whether or not to approve or deny the loan request.
The information in each of your Credit Reports from the three credit bureaus can be different. This is why it's important to review your Experian, Equifax®, and TransUnion® Credit Reports and FICO Scores.
The different types of credit
There are three types of credit accounts: revolving, installment and open. One of the most common types of credit accounts, revolving credit is a line of credit that you can borrow from freely but that has a cap, known as a credit limit, on how much can be used at any given time.
Common causes of a bad credit rating include failing to stick to your credit agreement, paying the bare minimum on your credit card each month, and falling victim to identity theft.
The longer your history of making timely payments, the higher your score will be. Credit scoring models generally look at the average age of your credit when factoring in credit history. This is why you might consider keeping your accounts open and active.
Payment history is the most important factor in maintaining a higher credit score. It accounts for 35% of your FICO score, which is the score most lenders look at. FICO considers your payment history as the leading predictor of whether you'll pay future debt on time.
FICO® Scores consider a wide range of information on your credit report. However, they do not consider: Your race, color, religion, national origin, sex and marital status.
Credit scoring models generally look at how late your payments were, how much was owed, and how recently and how often you missed a payment. Your credit history will also detail how many of your credit accounts have been delinquent in relation to all of your accounts on file.
Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.
FICO® score ranges vary — either from 300 to 850 or 250 to 900, depending on the scoring model. The higher the score, the better your credit.
The 20/10 rule of thumb is a budgeting technique that can be an effective way to keep your debt under control. It says your total debt shouldn't equal more than 20% of your annual income, and that your monthly debt payments shouldn't be more than 10% of your monthly income.