Hello again friends and followers,

Today I am sharing some FICO credit score basics. Whether building, repairing, or maintaining your credit profile,understanding the FICO 5 will help you see how your credit score is impacted by your day-to-day decisions. Each factor holds a different weight in the total calculation of your score. Let’s take a minute to look at each one.   

1. Payment History: Do you pay your bills on time? With a weight of 35%, this is the most important factor. Making on-time payments has the most positive impact. On the other hand, missed or late payments can have the most negative.
2. Amounts Owed: How much do you owe and on how many accounts? The balance of credit used and credit available composes 30% of your credit score. One way to keep this category from tanking your score is to keep your credit card balances below 30% of the available limit at all times.
3. Length of History: How long has a credit line been open and active? Your history of opened and closed accounts over time makes up 15% of the credit score formula. When working to increase your credit score, be very cautious in closing accounts, especially if they have been open for awhile.
4. Credit Mix: What types of trade lines do you have? Credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans are all types of trade lines. While you do not need one of each, a good variety accounts for 10% of your credit score. If you add to the mix, make sure it is an account you will actually use.
5. New Credit: How many new accounts do you have? New accounts (open for less than 12 months) make up 10% of your credit score. Opening several accounts in a short period of time may represent a greater risk. Before signing up for that store credit card to get 5% off today’s purchase, think about what other “deals” you signed up for in the last 12 months and about how this might affect tomorrow’s credit score.

Click here to learn more about FICO credit scores.

Every decision you make can affect multiple factors and cause your credit score to go up or down, and the strategy that worked for someone else may not be the strategy that works best for you. It is important to weigh all of the pros and cons as you make plans and take action steps towards your financial goals. If you need a hand with your action plan, the CASH Program Coordinators would love to help!

Until next time, keep calm and keep up with the CASH blog!  

Alicia Marsh

Homeownership Coordinator

aliciam@ihs-housing.org