Your FICO score not only affects your ability to get a credit card, but the ability to obtain a mortgage, low interest rates, vehicle loans and even auto insurance. A FICO score does this by looking at borrowing history, capacity to repay the debt and the probability that the debt will be paid, and then providing lenders with one single number showing how likely a consumer is to pay their bills.
Many consumers are unaware that FICO scores not only affect the ability to get credit cards, but they can directly influence the interest rate that the credit card comes with. Lower credit scores can cost the consumer up to ten percent interest rates on traditional credit cards.
Which Range Does Your FICO Score Fall In?
FICO scores range from 0-850.
• 750-850 Excellent Credit
• 660-749 Good Credit
• 620-659 Fair Credit
• 350-619 Poor Credit
• 0-0 No Credit
How Is Your Credit Score Formulated?
The components that make up your credit score are:
- 35% of the FICO score is based on payment history and any late payments that have been accrued and reported to the credit bureau.
- 30% of the FICO score is based on the use of your current credit cards and credit. The aspects that are examined are the amounts of credit owing, compared with the amounts of credit available.
- 15% of your credit history is based upon the length of time that you have been using credit.
- 10% of your credit is based upon any credit applications that are currently being processed, or anything that has been processed in the recent past.
- The last 10% of the FICO score is determined by diversity in the types of loans and credit that have been managed in the past.
To learn more about each of the components, please refer to this article.
How Can You Increase Your FICO Score?
Consumers ask this question often, especially after seeing a rejection notice in the mail for a credit card that they have applied for. It is important to remember that using these tips is not immediate but over time these proven techniques than can increase your FICO score.
• Ensure that bills are paid on time
• Reduce Your Credit Card Balances
• Do not Apply for multiple credit accounts at one time
• Open credit accounts and use these accounts responsibly
Now that you know how to obtain good credit, here are some actions that could negatively affect your credit, making it harder to be approved for a credit card:
• Failing to pay bills on time, making frequent late payments to accounts
• Defaulting payments to creditors
• Inadequate credit history
• Length of time at current residence
• The debt to income ratio (the balance available compared to the credit limit on credit cards)
• Negative information such as bankruptcies and “written off” credit
The lower your credit score the riskier the offer becomes when a credit card is going to create a contractual agreement by offering you a credit card. So do your best to maintain good credit, pay your bills on time, and not borrow more you can pay back.