FICO Score Help

Your FICO score is one of the most important numbers related to your personal finances. Lenders use FICO scores (also called credit scores) to determine whether borrowers should receive loans as well as the interest rate individuals receive on loans. The higher the score, the better. If your credit score is lower than you would like, there are several ways to potentially increase your score over time.

Servicing Debts

FICO scores range from 300 to 850 and are based on a variety of credit and financial information. According to the Fair Isaac Corporation, the company that created FICO scores, your payment history on debts like credit cards, personal loans and mortgages makes up 35 percent of your total FICO score. Paying all of your debts on time will help build a higher FICO score. The longer debts go unpaid, the larger the negative impact on your FICO score. Credit events such as bankruptcy or a foreclosure can have a long-lasting detrimental effect on your score.

Debt Balance

The total amount of debt you carry and your total amount of credit affect your FICO score. The Fair Isaac Corporation states that the amount you owe on loans and credit cards makes up 30 percent of your FICO score. Avoiding new debt and credit card use can reduce your total debt load and improve your score. Having a small ratio of debt to total credit on a credit card is also important. For example, if you have a credit limit of $10,000 and a balance of $1,000, it is better than having a limit of $2,000 and a balance of $1,000.

New Debts

Taking on new debt or opening new credit card accounts tends to have a negative effect on FICO scores. When you take out a new debt, it increases the likelihood that you will miss a debt payment or be stretched thin financially. After several years of servicing a new debt, the negative credit score impact will fade. If you plan on taking out a large loan like a mortgage or auto loan, avoid getting new credit before taking out the loan.

Credit History

Credit history is another factor that influences your FICO score. The longer your credit history and the more credit events you have in your credit history, the better. Even if you don't need to use a credit card, getting a credit card and using it for small purchases you would otherwise pay for in cash allows you to build credit history, which can help establish your FICO score. Closing old credit card accounts may hurt your credit score because it can shorten your credit history.