Posts Tagged ‘Reduce Your Fico Score’

Does Your Fico Score Reduce When You check your credit report?

If you think that your credit score reduces every time you check your credit report, you are mistaken. This is just a misconception, which unfortunately many people have. As a mattrer of fact, credit checking is a crucial step and the Federal Trade Commission strongly recommends all consumers to check their reports at least once every twelve months. That is the reason why there is even a provision in the US laws that makes the consumers entitled for one free report from each credit reporting bureau at least once every year. Information is thus the key factor. The more informed you are, the better you will be able to use your legal rights and protect your credit worthiness.

Factors That Affect Your Fico Score

When you check your credit report, the credit bureaus do not add any entry in your report for this. Since no entry is added, there is no way your FICO score can increase or decrease because of this. It is very important for you to keep in mind that there are only five factors that can have a positive or negative impact on your FICO score. Those factors include new credit (10%), credit mix (10%), length of credit history (15%), outstanding debt (30%), and payment history (35%).

Payment History

Making your debt payments in a timely manner will improve your credit worthiness. Making late payments or making defaults on the debt payments will affect your score negatively. Always remember, 35% of your FICO score is determined on the basis of how disciplined or careless you have been in making the repayment toward your debts. The next time you check your credit report and notice there has been a decline in the rating, you must carefully review your payment history. Rebuilding your payment history will help you rebuild your credit score.

Outstanding Debt

It is good that you have a high credit limit, but it does not mean that you should use the max out that limit. A high credit limit but low outstanding debt is a healthy sign for your FICO score. A general rule of thumb is to use a maximum of 30-35% of your maximum credit limit. This factor is again a crucial one and you need to be very careful about it because 30% of your score is determined on the basis of your credit to debt ratio.

Length Of Credit

The longer credit history you have, the healthier your credit score will be. 10% of your credit depends on this factor. So, when you check your credit report, you should also carefully review the length of your credit history. There is nothing much you can do to make it lengthier; it is just a matter if time only.

Credit Mix

Another 10% depends on the diversification of credit that you are using. It means it is always better to use different types of credit, such as mortgage, car loan, credit card etc. It means if you are not using any credit card to avoid overspending, you may actually be hurting your credit score. Therefore, your strategy should be to have a credit card but you must use the same wisely.

New Credit

Sometimes, you check your credit report and wonder why your rating is falling despite the very fact that you have taken care of the above four factors very well. This is possibly because you are applying for a lot of new credit in a very short period of time. Such things are considered as a financially irresponsible behavior. Things become worse when you apply for a new credit and your application gets rejected because of any reason.

Overall, it is very important that you check your credit report on a regular basis, at least every six months. Checking these reports does not cause reduction in your Fico score. The reduction occurs because of certain factors, which have been explained above.

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