Five Fico Score Factors That Make Up Your Credit Scores

A credit score is an extremely important financial tool. It provides access to the financing you need in order to buy a home, a car, or pay for college tuition, among other things. Since higher scores equate to lower costs and lower interest rates and vise versa, it’s vital to understand the factors involved in calculating your score.

Five Factors That Make Up Your Credit Scores

1. Payment History: 35% impact. Paying debt on time and in full has a positive impact. Late payments, judgments, and charge-offs have a negative impact. Missing a high payment has a more serious impact than missing a low payment. Delinquencies that have occurred in the last two years carry more weight than older items.
   
   When applying for a mortgage, every point in your credit score can make a big difference. So don’t make any major financial or credit decisions – even paying off an old debt or delinquency – without first discussing it with your mortgage professional.



2. Outstanding Credit Balances: 30% impact. This factor marks the ratio between the outstanding balance and available credit. Ideally, consumers should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit when trying to purchase a home.



3. Credit History: 15% impact. This marks the length of time since a particular credit line was established. A seasoned borrower is stronger in this area.



4. Type of Credit: 10% impact. A mix of auto loans, credit cards, and mortgages is more positive than a concentration debt from credit cards alone.



5. Inquiries: 10% impact. This quantifies the numbers of inquiries (or requests for credit) that have been made on a consumer’s credit history within a six month period. Each individual inquiry can cost from 2 to 5 points on a credit score, but the maximum number of inquiries that will reduce the score is 10.
   
   In other words, don’t start the loan process until you’re ready to act. Otherwise each individual credit inquiry could cost you. However, scoring models have now been adjusted to count multiple “hard” inquiries within a 14-day period as a single request. So, when you’re ready, your credit will be too. See: What Happens To My Credit Scores If I Shop Around For A Mortgage?

Article written by Guaranty Title Agency of Arizona. Guaranty Title Agency has been serving the needs of the Arizona real estate community for over 30 years. During those years, we've developed a strong culture of valuing each client who asks us to serve them. We work for you. We don't ever forget that. We'll listen to your suggestions, and do everything we can to exceed your expectations. We're your Partner for Success.