Making payments regularly when they are due is a key ingredient to building and maintaining a healthy credit score. Some components contribute at a greater percentage than others, but each piece is equally important and should be understood by those interested in building and a maintaining a healthy credit score.ģ0% Amounts Owed: Debt with outstanding balances and payments still being made.ģ5% Payment History: Also known as payment timeliness. ![]() For the FICO credit score the components include amount owed by individuals, payment history reports, length of credit history, the types of credit used by a person, and new credit available. There are multiple components that contribute to the calculation of a credit score. Needless to say, they are a very important aspect of life. In the financial industry, credit scores can help or prevent you from getting a job or receiving a certification. A credit score can be the reason you can or cannot purchase a home, car, or get a business loan. It also serves as factor in determining what your interest rate will be on the loan you receive. How Does It Affect Me?Ī credit score is a financial label that shows lenders if you qualify for a loan. When a consumer applies for credit – whether for a credit card, an auto loan, or a mortgage – lenders want to know what risk they'd take by loaning money. “A FICO credit score only looks at debt” (Sangl, 2009). Chelsea Fagan, cofounder of The Financial Diet, defines credit scores as “a numerical score – ranging from 300 to 850 that represents your creditworthiness, how trustworthy you are with your money.” Joseph Sangl, local financial educator and founder of “I Was Broke, Now I’m Not,” defines credit scores as “a measure or one’s ability to manage debt.” The most widely used credit score is a FICO score, which is a well-known measure created by the Fair Isaac Corporation, and used by credit agencies to indicate a borrower's risk. ![]() A credit score is a number that represents the risk a lender takes when you borrow money.
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