Credit Killers That Ding Your Fico Score

There are a growing number of people who started out with great credit and who are now borderline. But then again, what is borderline? I hear the average FICO score just dropped to 703; then I hear from a mortgage broker you need a 770 to get the best interest rate; it’s really all up to the source, but consumers need to know what will boost your score and what kills your credit.

What makes up your Score?

1. Payment History; have you paid your bills on time and for how long. This accounts for approximately 35 percent of your score. If you have paid one or more of your bills 30 or more days late, your score begins to drop.

2. Amount owed; this accounts for approximately 30 percent of your score. Keep in mind, debt-to-credit ratio on your credit report is determined differently than on a mortgage application. Debt-to-credit ratio for your FICO score is determined by adding up all your outstanding balances divided by available credit.

3. Length of credit history; the amount of time you have held credit accounts for 15 percent of your score. This is not even included in your FICO score if you have had less than 6 months of active credit.

4. New credit. This amounts to 10 percent of your FICO score. Attempts to acquire new credit affect your score.

5. Type of credit you use (credit cards, installment loans, etc.). This accounts for 10 percent of your score.

Those are the 5 factors that make up your FICO credit score and while the financial world knows what makes up your credit score, FICO doesn’t exactly let us know much more. What’s so mysterious is how they use each factor.

It hasn’t been certified, however, it’s said that if you apply for a credit card, never use it and simply close the account that is a negative against your FICO score. Figure that out?

The Credit Killer

High Balances. If you have high balances on your credit cards and loans, your debt-to-credit ratio is going to be high which impacts your FICO score dramatically.

Not enough credit. The biggest myth is thinking you can have one credit card, make payments in full, on time every month and you’ll be rewarded with a outstanding credit score. Wrong! If you have only one credit card you look unimpressive, as if you can’t handle credit.

Length of credit history. Even if you have open accounts, active and paid on time, your credit history must go back 24 months to make a difference.

Closing accounts. When you close accounts, your debt-to-credit ratios take a big ding and this ratio makes up to 30% of your score. The longer each account is open, the better.

Now you know what makes up your score and the weight each item is given. Prioritize your actions and ramp up that FICO score.