How is the credit score calculated in the US?

The most popular and widely used credit score model in the US is the FICO score. The model was created by the Fair Isaac Corporation, and the score ranges from 300 to 850, where 850 is the highest score one can achieve. With a high FICO score, you will have numerous credit options to make the best financial decisions. If your credit score falls under 600, then it’s time for fast credit repair. You can fix your credit yourself or reach out to credit repair services that will assist you in taking your score out from the mess.

Now, moving on to how FICO scores are calculated, let us list down the various factors that are taken into consideration for calculating your FICO score:

• Payment history: 35% of your FICO score is your payment history. Every lender before giving you credit wants to see your payment history to check whether you made all your credit payments on time or not. If you have missed your credit payments numerous times than this thing can deteriorate your credit score badly. Although an overall good credit history can outrun one or two instances of late payments.
• Credit Utilization: Credit utilization determines 30% of your FICO score. It is the ratio of the amount you use in comparison to the total credit you have. Having a high credit utilization rate means that you are using a lot of your available credit that increases your chances of default in the eyes of the lenders. 

As the credit bureaus, the ideal credit utilization rate is 30% that help you fetch a good FICO score.

• Credit history length: Another major factor that contributes up to 15% to your credit score is the length of your credit history. The longer the length of your credit history, the better your credit score will be. Your credit history length depends on the age of your oldest account, the age of the latest account, and an average age of all your accounts. In case you want to build a good credit score, make sure you keep using your credit accounts frequently.
• New Credit: Contributing 10% in your FICO score, new credit plays a vital role in increasing your score by significant numbers. Opening one or two new lines of credit can be good for your score. But make sure that you do not open too many accounts in a short period of time as every time you open a new account, a hard enquiry is placed on your credit report which has a negative effect on your score.
• Credit Mix: 10% of your credit score depends on your credit mix. Using only a single kind of credit is not beneficial for your FICO score. Relying on only loans or credit cards can negatively impact your score. Therefore, it is crucial that you have a perfect mix of credit to boost your credit score.