FICO scores indicate a person’s 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. Landlords and utility companies may also consider your credit score. If your credit score doesn't reflect your ability to repay loans or obtain a new credit card, then you will need to work on it.
Payment history
Credit scores are influenced by your payment record. It shows when you paid a particular debt and the amount owed. You will see fewer negative entries over time. Trended data for the last 24 months is also included in the latest FICO model. This can be helpful to lenders when determining if you are likely to repay your debt fully.
Payment history refers to your payment history on all of your accounts, which gives lenders a snapshot of your repayment behavior. You can damage your credit score by missing a payment, or sending one in to collections. Lenders view you as a high risk borrower if your payments are not made on time.
Accounts owing
The number of accounts you have is one of the biggest factors that can affect your credit score. This category is responsible for about 30% of your overall score. It is directly affected when you open new credit cards accounts. This also includes your account types and their balances. Your risk of being overextended is higher if you have more accounts.
Paying off your debt is one way to improve your credit score. 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. Although debt is not necessarily a sign of a high risk, it can make it more difficult for you to pay your monthly obligations.
Credit history length
The length of your credit history is one of the most important factors that will determine your credit score. Your credit score includes the age of each account as well as its length. At least six months should be sufficient to establish a credit history. However, if a new account has been opened, your credit history may be much shorter.
FICO uses the average account age to determine your credit history. This figure can be calculated by adding each account's ages and dividing it by the total number. The average credit account age is 8 years. 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. These factors are not publicly disclosed by FICO, however.
New credit
FICO scores are calculated based on recent activity. These include credit application and opening new accounts. Lenders also will consider when you last applied for a loan and can lower your score by a few point. The type of activity that affects your score depends on the type of account you apply for and the amount of credit you are applying for.
The good news is that there are two ways to improve your score: by paying your bills on time and by using available credit responsibly. The first step is to review your credit reports. Luckily, you can get your reports in less than two days. Another way to monitor your credit is by setting up due-date alerts on your credit card bills. Although it can take some time to set up these alerts, it is a great way to improve your credit score.
VantageScore
VantageScore is an online credit score that was created in 2006. FICO and VantageScore are based on credit reports. However, the method of calculating the credit score differs. FICO is based on data from the credit agencies, while VantageScore relies upon data about consumer behavior over two years. Consumers should understand how VantageScore score and FICO scores are different and how they interact.
VantageScore has both its benefits and its drawbacks. For one, it is easier to understand and compare. Equifax, Experian and Transunion developed the VantageScore system with the aim of making it consistent and more understandable. It also uses letters rather than numbers.