As a Connecticut resident, you likely find it extremely difficult, if not impossible, to live without credit. Cash has become almost irrelevant in today’s economy, and having good credit is one of the best things you can do for yourself.
But you cannot obtain credit unless you have a good credit score. CreditCards.com advises that FICO, the largest U.S. provider of credit scores, uses the following five factors to compile your over all credit score:
- Payment history
- Credit utilization
- Length of credit history
- New credit
- Credit mix
1. Payment history
Your payment history represents 35% of your FICO score. FICO watches how you handle both your revolving credit such as your credit cards and your installment credit such as your mortgage, student loans or car loans. What it looks for is how often you miss a payment, how recently you have done so, and how severe those missed payments were. Therefore, your best strategy consists on always making your payments on time.
2. Credit utilization
Credit utilization represents 30% of your FICO score. Credit utilization refers to how much of your available credit you actually use. Per FICO, you will get the best credit score if your utilization ratio remains under 6% and you have at least three revolving account balances of less than $3,000. And remember, FICO measures your credit utilization of each credit card, plus across cards.
3. Length of credit history
Length of credit history represents 15% of your FICO score. Consequently, if you are a young person who has not yet established credit, you should do so. Your FICO score will improve the longer your credit usage and payment history.
4. New credit
New credit represents 10% of your FICO score. Nevertheless, you should never open a credit account just for the heck of it. In fact, if you open too many lines of credit at the same time, this could actually hurt your credit score since FICO will tend to believe that you face financial problems and need fast access to as much credit as possible.
5. Credit mix
Your credit mix represents the final 10% of your FICO score. Credit mix refers to the various types of credit you have: installment accounts, revolving accounts, open accounts, etc. In other words, having and responsibly paying a variety of different credit accounts shows how well you manage your credit.
This is general educational information and not intended to provide legal advice.