Money, Health, and Other Things

Educational Blog in the Area of Family and Consumer Sciences for the Middle Peninsula


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Demystifying Credit Reports and FICO Credit Scores, Part II

Welcome back! Today we’ll move forward and discuss FICO credit scores, a score from 300-850 that is meant to reflect your credit worthiness. Here are the five factors that make up your FICO credit score!

The largest factor for your credit score, at 35%, is your payment history – are you making your credit and loan payments on time? Are they being paid as asked? More than a third of your score is based on how well you’ve done making payments!

The next highest factor, at 30%, is your credit utilization ratio – what percentage of your open credit (for example, your credit card limit) are you using? Keep in mind, this is NOT calculated after you make your payment; if you’re consistently using a high percentage of your credit limit, even if you pay your bill in full at the end of each month, this could still damage your credit score! While there is no universally agreed upon target credit utilization ratio, keeping your utilization ratio below 30% is a common recommendation. FICO has provided data that those with a credit score in the 800s have an average utilization ratio of 4%, so the lower the better!

Next, at 15%, is length of credit history. In general, having a longer history of well-maintained credit will help you increase your FICO credit score, and it may take some time to re-establish or build credit for the first time.

A smaller factor, at only 10%, is credit mix. In general, a consumer that is doing a good job maintaining a credit card, student loan, car loan, and mortgage will have a better credit score than someone who only has a credit card, all other factors equal.

The last factor, also at 10%, are inquiries. Inquiries occur whenever someone checks your credit; however, not all inquiries impact your credit score. “Soft” inquiries, such as credit checks from employers or credit checks that haven’t involved you applying for a new credit item or service, will show up on your credit report (*for you, they likely won’t be visible for creditors checking your credit report), but will not impact your credit scores. “Hard” inquiries, which occur when you apply for a new credit/loan item or service (*depending on the type of service, it may be a hard or soft inquiry), may negatively impact your score. While one hard inquiry is unlikely to have a significant impact, numerous hard inquiries in a short period of time can! Fortunately, if you’re rate shopping for a mortgage, auto loan, or student loan, inquiries made in a 45-day period are likely to be counted as only one hard inquiry, and the first inquiry shouldn’t impact your credit for 30 days.

That concludes our two-part discussion on credit reports and FICO credit scores, if you have any questions, feel free to contact me at gjsturm@vt.edu.