FICO score is a key factor that proves your reliability and creditworthiness for potential lenders. Good credit is valuable. It opens you doors for the best credit card offers with tempting APR and moderate fees. Having a low score can give you a hard time to find a suitable plastic. Credit companies can reduce your credit limit or require to a deposit a set amount of money on a savings account. By understanding the factors that affect your credit score, you will be able to improve and maintain your good credit rating.

The FICO score was developed by Fair Isaac Corporation in 1989 as a measure of potential credit risk of applicants. Generally, it ranges from 300 to 850. According to the financial surveys, only 13% of Americans have scores above 800. The average FICO score is 723. However, many creditors require a score of 760 or higher to qualify for their credit cards.

If you don't face the requirements, you may not get approved for the credit card you want. However, knowing the reasons that affect your credit score will help you evaluate your financial behavior and take steps to improve your FICO score. The factors are the following:

• Debt/available credit ratio. How much you owe makes up one third of your score. Credit bureaus calculate the ratio between your credit card debt and available credit. If you max out your credit limit or borrow too much, the percentage of debt/available credit goes up. It will make your FICO score lower. If you have a debt, try to keep it less than 30% of your available credit.

• The length of your credit history. The longer your credit history is, the more creditworthy you will be considered. Getting multiple new credit cards within a short time can negatively affect your score because it reduces the average length of your accounts. Also pay attention to how long it has been since you used your credit card. Having an idle plastic for many years won't boost your score because there are no payments to report to the credit bureaus.

• Payment history. This factor has the biggest impact on your credit score. Regular on-time monthly payments will raise your credit score, while defaults significantly lower it. Negative information can remain on your credit report for seven years. The recent late payments or missed payments hurt your score more.
• Types of credit. Your score reflects what types of credit you have had: credit cards, charge cards, retail accounts, and installment loans like auto loans or mortgages. Having a healthy mix of credit will make a FICO score higher. The financial experience with revolving credit, for example credit cards, where you can control how much you spend and pay off each month, has more weight than installment loans with fixed payments.

• New credit applications. A lot of recent credit inquiries will have a negative effect on your FICO score because the creditors can suggest that you are in a serious financial trouble.

There are other factors that lenders look into: your income, age, marital status, the kind of credit you are requesting. However, these factors have no impact on your FICO score.

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Comments

Dorothy S. Fuller, 11:34 PM, April 20, 2008
Thx for thr information! I try to keep in mind all these points to boost my credit score.

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