FICO scores are an indicator of a person's credit history. They are used by creditors to look at existing debt and income. A higher credit score can give you more options and lower interest rates. Your credit score can also be used to determine whether you are a landlord or a utility company. If you don’t have a high credit score, it may be necessary to increase your score to get a loan.
Payment history
Credit score is influenced by your payment history. It records when and how much you have paid off a debt. Your report will gradually erase older negative entries. Trended data from within the past 24 hours is included in the FICO model. This helps lenders to assess your likelihood of repaying all debts.
Lenders can see your payment history by looking at your payment history across all of your accounts. You can damage your credit score by missing a payment, or sending one in to collections. This is because lenders see you as a high-risk borrower, if you fail to make your payments on time.
Accounts owed
The number of accounts you have is one of the biggest factors that can affect your credit score. This category makes up about 30% of your total score and is directly affected by new credit card accounts. This category also includes account balances and types. The higher the risk of you being overextended, the more accounts you have.
One of the ways to improve your score is to pay off your debt. Credit scoring models consider many factors in determining a person's credit score. The amount of debt is one of those. A high amount of debt does not automatically make you a higher risk. However it can make it more difficult that you meet your monthly obligations.
Credit history length
One of the most important factors in determining your credit score is the length of your credit history. Your credit score takes into account the length of each account, as well as the age of each account. At least six months should be sufficient to establish a credit history. Your credit history will be shorter if you open a new account.
FICO uses your average credit account age as an indicator of your credit history. This figure is obtained by adding the ages for each account to the total and then dividing by the number of accounts. Credit accounts average around 8 years old. Your credit history is also affected by the age of the accounts and their duration. FICO doesn’t disclose these factors.
New credit
Your FICO score will take into account recent activity, such as the time you have been applying for credit and having new accounts. Lenders will also look at the time since you last applied for a new account and may lower your score by a few points. Your score is affected depending on which type of credit you apply for, and what kind of activity you have.
Good news is that you can improve your score by paying your bills in time and responsibly using credit. Check your credit report first. Luckily, you can get your reports in less than two days. A second way to monitor credit is to set up due-date alerts for your credit card bills. While it takes a little time to set these up, it's an excellent start to improve your credit score.
VantageScore
VantageScore was introduced in 2006 and is a credit scoring system. It is based on credit reports, just like FICO. However, VantageScore is different in how the credit score is calculated. For instance, FICO uses data from the credit bureaus, while VantageScore uses data about consumer behavior over a two-year period. It is important for consumers that they understand how VantageScore, FICO scores differ and how these affect one another.
VantageScore has its advantages and disadvantages. It is simpler to comprehend and compare. Equifax, Experian, Transunion created the VantageScore system in order to be consistent and easy to understand. It uses letter grades rather than numbers.