The Anatomy of a Great FICO Score

Posted by Chris on February 24, 2015

In the world of FICO scores, absolute perfection is close to unattainable. The highest score possible in the FICO credit scoring system is 850, and very, very few people ever see such a number. If you're highly competitive or even a downright perfectionist, resist the urge to obsess over the never-never land of FICO perfection.

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Decunstructing the Anatomy of a Great FICO Score

The good news is that, just as in horseshoes, close is good enough. A credit score over 760 will typically qualify a borrower for some of the lowest rates available.

The pursuit of a high credit score requires awareness of how various factors are weighted in FICO calculations. The five components of your credit history are evaluated as follows:

  • Payment history - 35%
  • Credit utilization - 30%
  • Length of credit history - 15%
  • New credit - 10%
  • Credit mix - 10%
Let's look further at how each of these areas impact your score.

Payment History

It shouldn't be too surprising to learn that consistent on-time payments have a major impact on your FICO score. Even one reported late payment will bulldoze your Quixotic quest for that perfect credit score. It's simple: an excellent payment history will send you on your way toward the holy grail of a near-perfect FICO score.

Credit Utilization

Credit utilization is another important category, since it accounts for 30 percent of your FICO score. Avoid using more than 30 percent of the total credit that has been extended to you. However, if you're seeking a high score on a credit report, be aware that 7 percent is considered optimal.

Length of Credit History

Anyone who is just starting to build a credit history need not worry about achieving a perfect credit score. Since 15 percent of the score is determined by how long you've had those credit cards and installment loans, perfection for newbies is just not possible.

New Credit

A prospective lender will often get nervous if there's evidence that a borrower has recently taken on a load of new debt or acquired new credit lines. This is because the lender has no effective way to assess how the borrower will handle this new credit.

A high credit score is related to showing self-restraint when applying for new credit. For example, avoid those quickie department store card applications offered at checkout.

Credit Mix

The final 10 percent of your score is based on credit mix, and this can be a somewhat more mysterious category. The general idea is that lenders favor those who have demonstrated that they can handle various types of credit and debt. Use a mixture of installment loans and revolving credit accounts to get the best credit score possible.
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Topics: Credit 101