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How to interpret the FICO score range

The FICO range was developed in 1956 by the Fair Isaac corporation. The credit score range used by each credit reference agency is based upon subtle variations of the formula. These are called the Equifax Beacon, TransUnion Empirica and Experian FICO II ranges. The five factors that determine your FICO score are discussed in this article.

Payment history

The way you've handled your credit arrangements is the most important factor and is responsible for up to 35% of your score. Missed and late payments will be recorded for the next 7 years. However, if you've filed for chapter 7 bankruptcy, this information will be available to any company that performs a credit check for up to 10 years. Provided that you don't default, your FICO credit rating will get better after each passing month.

Amount owed to creditors

Credit utilization accounts for 30% of your FICO credit score. This can be defined as the amount of money that you owe your creditors relative to your maximum credit limit. For example, most credit repair experts agree that you should avoid using more than 30% of your credit limit in one month. When you're financial stretched, you're far more statistically likely to default on the terms of the agreement.

Length of credit history

As much as 15% of your score is determined by how long the agreement has been active. The general rule is that the longer the agreement has been active, the greater the effect it will have on your credit rating. If you have an old store card that's been gathering dust, it's advisable to use it once or twice a month. Closing down the account will have negative implications for your FICO rating.

Types of credit and its recency

Up to 10% of your Fair Issac score is derived from the type of credit agreements you have. This means that you should sign-up to several different forms of revolving and instalment credit, including mortgages, credit union loans. credit cards, car finance, student loans and store cards. When your credit agreement started has a 10% weighting. Opening lots of new accounts and performing multiple credit searches in a short timeframe is very detrimental. It's seen as a sign of financial desperation by lenders and card issuers. Each credit search will be recorded for a period of not less than 24 months.

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