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How can I better understand my financial health?
Your FICO® Scores reflect credit payment patterns over time with more of an emphasis on recently reported information than older information. Below is some general information about shaping your financial future:
- The key score factors provided with your FICO® Score represent the main areas of credit practices that impact your financial health.
- Consumers with a moderate number of credit accounts on their credit report generally represent lower risk than consumers with either a large number or a very limited number of credit accounts. Opening accounts solely for a better credit picture probably won’t impact a FICO® Score and, in some instances, may even lower the score.
- People who continually pay their bills on time tend to appear less risky to lenders. Collections and delinquent payments, even if only a few days late, can have a major negative impact on your FICO® Scores.
- People who stay caught up on amounts due and continue to pay their bills on time are generally viewed as less risky to lenders. Especially after missing payments, getting back on track with paying bills on time will have an impact on your financial health. Older credit problems have less impact on your FICO® Score than recent ones, so poor credit performance won’t haunt you forever. The impact of past credit problems on your FICO® Scores fades as time passes and as recent good payment patterns show up on a credit file. And your FICO® Scores weigh any credit problems against any positive information that indicates that you’re responsibly managing your financial health.
- Creditors and legitimate credit counselors may be able to provide direction to people who are having trouble responsibly managing their financial health. Seeking assistance from a credit counseling service will not hurt FICO® Scores.
- High outstanding credit card debt can negatively impact your FICO® Scores.
- Paying down total revolving (credit card) debt, rather than moving it from one credit card to another, is a responsible financial health management practice.
- Most public records and collections stay on a person’s credit report for no more than seven years—though bankruptcies may remain for up to 10 years. However, as these items age, their impact on a FICO® Score gradually decreases, and people can re-establish a good credit history with ongoing responsible financial health management.
- People who show moderate and conscientious use of revolving accounts, such as having low balances and paying them on time, generally demonstrate responsible financial behavior. Having credit cards and installment loans (and making timely payments) will positively impact financial health. People with no credit cards, for example, tend to be higher risk than people who have managed credit cards responsibly.
- Typically, the presence of “inquiries” (the number of requests from a lender for your credit reports when you apply for loans) on a credit report has only a small impact, carrying much less importance than late payments, the amount owed, and length of time a person has used credit. FICO® Scores consider recent inquiries less as time passes, provided no new inquiries are added. Too many “inquiries can negatively affect a FICO® Score. However, FICO® Scores treat multiple inquiries from auto, mortgage, or student loan lenders within a short period of time as a single inquiry because when purchasing a house or a car it is customary to shop for the best rate, resulting in more inquiries.
- Closing unused credit cards as a short-term strategy to increase a FICO® Score can actually have the opposite effect and lower a FICO® Score.
- For people who have been using credit for only a short time, opening a lot of new accounts too quickly can lower a FICO® Score.