You probably know the FICO score as a three-digit number that helps determine certain things in your life–such as whether you’ll qualify for the best credit cards, or get a favorable rate on a mortgage.
FICO was created by the Fair Isaac Corporation, an analytics software company headquartered in San Jose, California. Fair Isaac was founded in 1956 by engineer William “Bill” Fair and mathematician Earl Isaac on the premise that data and algorithms could help businesses make decisions. Ultimately, the score is intended to predict the likelihood that you’ll pay a lender back.
Factors and Their Level of Influence on Your Score:
Payment history (35%): Your payment history shows whether you’ve made payments consistently on time.
Amounts Owed (30%): You can have multiple credit cards and not be a credit risk. It’s only when you
use a significant amount of your available credit that it begins to negatively affect your score. This is also
referred to as your “credit utilization”.
Length of credit history (15%): FICO considers the age of your oldest account, the age of your youngest account average age of all of your accounts. FICO also notices how frequently you use your accounts.
Credit mix (10%): This is about the type of credit you have, such as installment loans, credit cards and mortgage. You don’t need each one, but having more than one type of credit is positive.
New credit (10%): This looks at the number of new credit accounts and loans you have opened (or tried to open) recently.
What Are the FICO Score Levels?
Poor 300 – 580
Fair 580 – 669
Good 670 – 739
Very Good 740 – 799
Excellent 800 – 850
Things That Hurt Your Score
Your FICO score fluctuates. Positive behavior, such as making on-time payments, can result in an improved score. Negative behavior, such as missing payments, results in a lower score. According to FICO, there are certain behaviors that will certainly hurt your score.
- Missed or late payments
- High credit utilization (or close to reaching your overall credit limit)
- Opening multiple new credit or loan accounts around the same time
- Errors on your credit report