Credit Score
(Photo : Reuters)

A credit score is very important most especially for the Americans anyone who lives in the United States. A good credit score means it qualifies a person to apply for a loan, a credit card, getting a car, and most of all in getting a job. 

What is a credit score?

A credit score is a three-digit number that reflects on how likely you can repay a loan on time. Using your credit score information, banks can predict if you are a good payor or not. 

While it is true that there are many Americans who have a good credit score, it is also very important to know as to what are the factors that are considered by the agencies in getting the three-digit score.

In a published article in Fox News, during the second quarter of 2019, the average FICO score was 703 though the scores vary based on age. Those who range from 20 and 29 have the lowest credit score while 60 and over have an average score of 749. Moreover, the state that has the highest credit score during the second quarter last year was Minnesota.

What is a FICO score?

A FICO score was created by the Fair Isaac Corporation. This helps the lenders and banks to assess the credit risk of a person along with other information of the borrower. In determining your FICO scores, there are 5 factors that you should know on how they calculate your score. Here the five factors:

PAYMENT HISTORY

Payment history refers if an individual is paying their borrowed money on time. This will also indicate when the borrower paid and how many days he or she is late in submitting his or her payment in each credit line. This has the largest portion of your credit score which is 35 percent.

AMOUNTS OWED

This refers to the amount that a person owes. However, it does not mean that the bigger the amount that a person borrows or having lots of credit lines can be equated to a low credit score. FICO considers the ratio of the available amount to its borrowed money. To illustrate, a person who has $10,000 but has all his credit lines fully extended and has maxed out may have a lower score compared to a person who has $100,000 but is not close to the limit of his accounts. This comprises the second largest factor in the FICO credit score which is comprised of 30 percent.

LENGTH OF CREDIT HISTORY

This refers to how long an individual has had credit. FICO considers how long was the oldest account opened and the age of the new account and the overall average. Typically, there are instances where a person who has longer credit histories have a higher credit score. This is comprised of 15 percent of your FICO credit score.

CREDIT MIX

This refers to a variety of accounts such as retail accounts, credit cards, installment loans or vehicle loans, mortgages, and more. This is comprised of 10 percent of your FICO Credit score.

NEW CREDIT

This refers to the recently opened account. If a person has opened new accounts just in a short period, this means that a person is at great risk of getting a lower credit score. This is comprised of 10 percent in your FICO credit score.