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Building Your Credit



What is a FICO Score?


Your credit report shows where and to who you owe money too—it’s your credit history. The result of which leads to your Fico Score.

A FICO scoreis a type of credit score that lenders often use to decide if they should extend a person credit.  A FICO score is made up of five factors all at differing levels:

1.   35%Payment history.  This makes up the largest piece of the FICO score, so it’s very important to make your paymentson time.  Payments included in this score are credit cards and loans.

2.   30% Amounts owed.  Reduce the amount of money you owe, and focus on your high interest debt.

3.   15% Length of credit history.  Credit cards and installment loans (like a student loan) with good on-time payment history can improve your FICO score.  If you are trying to reduce your credit cards, be sure to keep your card with the longest and best history.

4.   10% New credit.  If you are opening a new credit, be sure not to open too many new lines at once.  The more new credit lines you have the lower the average age of your credit history.  This will reduced your credit score.

5.   10% Types of credit used.  Not all credit is created equal.  Home and student loans (a home and education will appreciate) are considered better debt than a car loan (which depreciates when its driven off the car lot).  Also, general credit cards, which generally have lower interest rates, are better than a department store card.  Be wary of opening a new line of credit, even if they give you 15% off your purchase!

Use these five factors as a guidepost to build good credit.