Payment history is the primary factor in calculating a FICO score, accounting for 35% of the total score. Late payments, collections, and bankruptcies can all negatively impact your score. Credit utilization is the next most important factor when calculating your FICO score. Credit utilization refers to the amount of credit being used as compared to the total amount available and accounts for 30% of the total score. A high utilization rate can indicate that the borrower is overextended and may have trouble making payments in the future.

The length of a person’s credit history is also important. This metric accounts for 15% of the score. Lenders prefer to see a long history of responsible credit use. The types of credit used, such as credit cards, car loans, and mortgages, account for 10% of the score, and finally, recent credit inquiries, or the number of times a person has applied for credit recently, make up the remaining 10%.

To summarize:

• Payment History: 35%
• Credit Utilization: 30%
• Credit History Length: 15%
• Types of Credit Used: 10%
• Recent Credit Inquiries: 10%

FICO scores are often used by lenders including banks, credit card companies, and mortgage lenders. A high score can result in lower interest rates and more favorable loan terms, while a low score can lead to higher interest rates and less favorable terms. Having a low score may also make it more difficult to receive a loan at all.

It is imperative to periodically check your FICO score and credit report to ensure that there are no errors or fraudulent accounts.

In order to maintain a high FICO score, it is paramount that you pay your bills on time, keep your credit utilization low, and maintain a long credit history. It may also be a good idea to mix different types of credit and avoid applying for too much credit all at once. If your FICO score is less than ideal, you should address any negative factors as soon as possible, such as paying your bills on time and reducing your credit utilization, in order to improve your score.

FICO scores are an important aspect of personal finance. Maintaining a good credit history will go a long way vis-à-vis qualifying for low- or zero-interest loans, growing your business, and paving the way to financial independence. Keep a regular, periodic eye on your score and credit report and always ensure that there are no errors or fraudulent accounts.