What makes up a credit score?
Fair Isaac Corporation uses 22 pieces of data collected from the three major credit bureaus to produce a FICO score (your credit score) with the lowest possible score of 300 and 850 as the highest possible score. There are 5 weighted categories used to determine your score.
• Payment history 35%
• Debt 30%
• Length of Credit history 15%
• New Credit 10%
• Types of Credit used 10%
The two largest factors in obtaining a high credit score is to make sure you pay on time and keep your debt load low. The sad reality is only 13% of all Americans have a FICO score above 800. This means most Americans are paying more money for the exact same items.
Let me make my point with this car purchase example:
Very Good Score (800)
Loan amount $35,000
Term: 48 months
Interest Rate: 3%
Payment: $775
Average score (700)
Loan amount $35,000
Term: 48 months
Interest Rate: 9%
Payment: $871
That means the customer with an average score will pay $96 more a month for the exact same car. Over the life of the loan that extra $96 equals $4608 extra! Imagine if this was a mortgage! The dollar amounts would in the hundreds of thousands.
So what’s next?
Get focused and realize the lower your FICO score the more you will pay for items bought with credit or loans. This is equivalent to being a second class citizen right here in the Untied States of America. It’s time to fight back and recapture your good credit.
• Pay on time!
• Take action to reduce your debt. Don’t just pay the minimum on your credit cards.
• Don’t close old accounts.
• Don’t open new lines of credit.
It takes time and discipline to increase or maintain a high credit score, but the cost of not doing so is dramatic. A higher FICO score is in reach. Begin with the four “next steps” listed above and over time your score should improve.
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