FICO scoring is a system that lenders and underwriters use to determine what your interest rate on a loan is going to be. If you buy a house or car, the mortgage or the loan is determined by you credit report and your FICO score.

The score is based on the system developed by Fair Isaac Company (FICO) and the interest you pay, as well as monthly payments that are based on your personal credit history and score as well.

Same with a car loan, there is always a premium on car insurance or even homeowners insurance. Your FICO credit score can affect what your rate will be be. Your FICO score can even affect your chances of employment.

There are a lot of things that go into FICO scoring and we will group that into about five categories.

We will include in every category a certain percentage to give you an idea of the importance each area plays in determining your personal credit score.

Payment history (35%)

Payment history is the biggest factor in determining your FICO score. How many late payment or bankruptcies you have can hurt you significantly and the more recent the negative activity, the worse the score will be.

Outstanding Debts (30%)

Your debt is determined by how much of a revolving line of credit you are currently using. If you have a CC with a credit limit of $100,000, the ideal place to be is a balance of $40,000. This sounds odd but $40,000 shows that you are using credit but that you are keeping it well within your means. Same goes for a car loan. Pay off 60% as fast as you can.

History of Credit (15%)

How long have your accounts been open? High loan amounts that you have paid as agreed and have had open a long time work best. Closing old accounts can have a negative affect because it makes your credit history appear shorter.

Recent inquiries (10%)

Any time you apply for something that requires credit, the other party with pull your credit score. Some are soft pulls and some are hard pulls meaning some won’t pull quite as much information and will have little to know affect. Others will. A soft pull would be checking your own personal score or report.

Credit Types (10%)

How much is still owed on current mortgage loans, credit cards and finance companies compared with the original loan amounts? Also it’s important not to open a number of new credit card accounts just to increase your available credit. It will have the opposite affect and lower your score.