credit cards

FICO credit score produced by many factors

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Highlights
  • A history of prompt payments is vital to your FICO score.
  • Opening several new accounts at once can hurt credit.
  • There are steps you can take to improve your score.

FICO score's roots

FICO, known for the famous FICO credit score, was founded in 1956 by Bill Fair and Earl Isaac. The company developed the FICO score in 1989 to condense credit history into an easy-to-grasp format. The score is produced from a statistical analysis of a person's credit report data collected by Equifax, Experian and TransUnion.

Do the math

FICO scores range from lows of 300 to 400 to highs of from 800 to 900. The score is a result of the following factors: 35 percent of the FICO credit score is due to a person's payment history; 30 percent comes from their total debt load; another 15 percent is based on how long you have had credit established; 10 percent is produced from the types of credit you have available (mortgage, installment loans, revolving accounts, etc.); and the last 10 percent looks at whether you have recently gotten new credit. If you have opened too many new accounts in a short amount of time, it could have a negative effect on your credit score.

According to the Federal Trade Commission, the data about your credit is collected from your credit application and your credit report. Then your information is compared to the credit performance of consumers with similar profiles. The program has a credit scoring system that award or deducts points based on activities in your credit history; the result of this points system is the credit score.

Tips for raising credit scores

  • Pay bills on time.
  • Make up missed payments and keep payments current.
  • Maintain low balances on revolving debt.
  • Don't transfer debt to a new account; pay it off.
  • Only get credit cards that you need.
  • Don't close unused credit card accounts just to raise your credit score.

The better the FICO score, the more options credit users have. Lower interest rates on credit cards and easier payment plans on loans are just some of the perks of high credit scores.

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