Expert: How to Play the Credit Score Game
If you know the rules of the game, you will win the game. With credit, the rules are not easy to understand because of the many algorithms used to rate a person.
1. Payment history
Your payment history, whether you pay your bills on time or not, is the most important factor in your credit score and accounts for 35% of your score. All three credit bureaus have payment history information for each of your accounts.
If you pay off your debts on time, lenders see you as a better risk.
2. Amount due
The second most important credit score factor is credit usage. The portion of your available credit that you use represents 30% of your score. Generally speaking, credit usage refers to revolving debt (credit cards, store cards, or home equity lines of credit, for example) rather than fixed loan debt.
Try not to use more than 30% of your available credit. Whatever you do, don’t max out your cards.
3. Credit age
Your credit age is based on the age of your oldest account. The older your credit, the more robust this part of your scoring model will be. You don’t have much control over your credit age, so it’s only 15% of your FICO score.
One of the most important things you can do to keep your credit age solid is not to close older accounts. Lenders like to see that you have a long history of managing your credit accounts responsibly.
4. Types of credit
Lenders like to see evidence that you can handle many types of debt, and that’s why the credit mix is part of the FICO picture. The credit mix — the number of different credit cards, personal loans, and other types of debt you hold — accounts for 10% of your FICO score.
Strictly speaking, there is no ideal credit combination, but it won’t hurt to hold several different types of accounts. If you’re looking to increase your score, focus on credit usage and payment history before combining credits.
5. Credit applications (new credit)
New credit applications represent about 10% of your credit score. Simply put, every time you reapply for revolving or installment credit, potential lenders pull your credit file. This is called a thorough investigation, which is documented to track the activity you shop with for credit.
Hard requests are not the same as soft requests. Informal inquiries happen when you pull your own credit or when lenders prescreen or prequalify you for credit offers. They have no impact on your credit score.
This sponsored content was first published in the July edition of In Maricopa magazine.