How Is My Credit Score Calculated? Part II

In our last blog, we looked at two of the many factors that go into calculating your FICO score: namely, your payment history and how much you owe your lenders. But that’s only a small part of the story. And if you live in Montgomery County and are looking to rebuild your credit, it’s a story you’ll want to hear. Let’s examine the other components of your credit score and the role that they play in its evaluation.

How Long You’ve Had Credit

Your length of credit history is also a factor when calculating your FICO score, contributing 15% of the total number. For instance, how many years you’ve had credit obligations and how long your oldest account is will play a role here. While it’s okay to have a short history, it’s much better to have a long credit history, as long as it’s not riddled with late payments.

It’s precisely due to this that it can be advantageous to keep your credit card accounts open, even if you don’t really use them anymore. By having an account that has been open for a while, it’ll help to bolster your credit score. Conversely, if you happen to close your oldest account, you could see a drop in your score.

New Credit Accounts

If you’ve applied for a new line of credit, lenders will do what’s called a “hard pull,” which means they perform a thorough check of your credit information. Not only does this contribute 10% of your overall FICO score, but it can also cause a decline in it as well. This is because it will be assumed that you might have cash flow issues and be a credit risk.

For instance, if you apply for a mortgage, your potential lender will look into your existing debts. If you’ve recently opened some new credit card accounts, it could signify you’re planning on going on a spending spree. Even if that’s not the case, lenders can use your FICO score to gauge what kind of credit risk you might be.

Your credit score accounts for hard pulls over the last twelve months, so try to keep the amount you apply for new lines of credit to a minimum. And if you’re rate shopping for auto or mortgage loans, they’ll typically be counted as a single inquiry, but it’s a good idea to limit those to one every 30 days to prevent a hit to your credit score.

What Kind of Credit You Have

Accounting for 10% of your total FICO score, the different types of credit accounts that you have open can affect how high you rate. For example, if you have a variety of loans, like store accounts, credit cards, mortgages, and installment loans, it can help to bolster your score. However, no need to worry if you don’t have accounts in these categories, and definitely don’t open new accounts just to increase your mix of types of credit.

Clearly, there is so much more to your FICO score than simply how much you owe your lenders, and understanding your score is the first step to improving it. If you’d like more information on how to repair your bad credit in Philadelphia, call us today at 888-399-3898.