FICO scores are a measure of credit history. Creditors use FICO scores to examine income and existing debt. A higher credit score can give you more options and lower interest rates. Your credit score may also be used by landlords and utility companies. If you don’t have a high credit score, it may be necessary to increase your score to get a loan.
Payment history
Your payment history is one of the most important factors in determining your credit score. It shows when you paid a particular debt and the amount owed. Older negative entries will eventually disappear from your report. The most recent FICO model also contains trended data over the past 24 month, which lenders can use to determine whether you are likely or not to pay your debt.
Lenders can see your payment history by looking at your payment history across all of your accounts. Your credit score can be seriously damaged if you miss a payment or send one to collections. This is because lenders see you as a high-risk borrower, if you fail to make your payments on time.
Accounts owed
Credit score is affected by how many accounts you have. This category represents 30% of your total score. New credit card accounts directly impact this number. It also includes the types of accounts you have and their balances. The more accounts you have, the higher your risk of being overextended.
A way to increase your score is to pay down your debt. Credit scoring models look at many factors to determine a person's overall credit score, and the amount of debt is a major component of that. 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 will take into consideration the age and the length of each individual account. A minimum of six months is a good time to have a credit history. However, if you have opened a new account, your history will be much shorter.
FICO uses as an index your credit history the average age for your credit accounts. This figure is calculated using the average age of each credit account multiplied by the total number. Credit accounts average around 8 years old. The length of specific accounts and the length of time since they were opened are also considered when calculating the length of your credit history. FICO doesn't make these factors public.
New credit
FICO scores will consider recent activity such as when you applied for credit or opened new accounts. Lenders may also consider the time you have been applying for credit and could lower your score. Your score is affected by what type of account you apply and how much credit you apply for.
Good news is that you can improve your score by paying your bills in time and responsibly using credit. Start by checking your credit report. You can have your credit reports within two days. Setting up due-date notifications on your credit cards is another way to monitor your credit. While this can be time-consuming, it is an excellent way to improve credit scores.
VantageScore
VantageScore, a credit score, was introduced in 2006. The credit score is based upon the credit report. But VantageScore differs from FICO in the way it is calculated. FICO is based on data from the credit agencies, while VantageScore relies upon data about consumer behavior over two years. It is therefore important that consumers understand the differences between VantageScore Score and FICO Scores and how they impact each other.
VantageScore is not without its disadvantages. It is simpler to understand and compare. The VantageScore system is developed by Equifax, Experian, and Transunion with the goal of being consistent and easier to understand. It uses letters grades instead of numbers.