5 Basic Elements of a FICO Credit Score and Credit Report Basics

March 23, 2014

Credit Basics


FICO -  How to Improve My Credit Score

Good credit scores are vital to your financial health.  A credit score (FICO) is a number that helps lenders and others predict how likely you are to make your credit payments on time. Each score is based on the information in your credit report.

Have you ever wondered what makes up your FICO scores, and what it takes to improve your credit?  Have you looked at your credit report lately, and can you read it?  What can you do if you have a marginally bad credit score and you want to improve it?   First, you have to understand what makes up your credit score, what’s on  your credit report, and what kinds of accounts help you increase your credit score, as opposed to what makes your credit score bad.

The five basic elements that the credit score is comprised of are listed below.   Take a look at it and follow the basic guidelines outlined to increase your credit score – keep your credit card balances under 30% of the available limit, get rid of your department store cards, don’t open new accounts, and don’t get too many credit cards:

35% –  Payment History

  • Number of accounts paid
  • Number of negative public records
  • Delinquent accounts, past due items, how long since any late payments

30% –  Amounts You Owe (keep under 30% of limit per credit card)

  • Types of accounts with balances (credit cards are good, department store cards are bad)
  • Amounts owed vs. credit limits (keep balance on each credit card under 30% of max limit)
  • Number of zero balance accounts (it’s good to charge small amounts to keep credit cards “active”)

15% –  Length of Credit History (the longer the better)

  • Total credit history length
  • Length of time since each account is opened (the longer you have a credit card, the better)
  • Time since last activity (keep using credit cards, but charge small amounts to keep balance under 30%)

10% –  Types of Credit Used ( store and credit cards – bad for your FICO )

  • Types of accounts (installment vs. revolvong – mortgage, car, credit card, store cards)
  • Having regular credit cards, with low revolving balance is good
  • Having TOO many credit cards lowers your FICO
  • High balances (over 30% of credit limit) on your credit cards lowers your FICO
  • Having ANY department store (Target, Kohl’s, Macy’s, Home Depo, etc) lowers your FICO
  • Revolving mortgages and car loans increase your FICO

10% –  New Credit (bad for your FICO)

  • Number or accounts recently opened
  • Number of recent credit inquiries
  • Short time since recent inquiries
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