The Circle of Life

What’s the first thing you thought of when you read that title?  The Lion King? Something else? Circles are everywhere in our lives, vicious circles, circles of life, truth etc. However, I want to talk about a circle that many of you may not think of, but that is pretty important.

Over the last couple of weeks, I’ve been talking about credit, how to build it, how to fix it and how it works. So today, we’re going to talk about how your credit rating is determined.

The most commonly used credit score is known as a FICO score.  FICO stands for Fair Isaac Corporation. They are the ones that have the done all the math, (and a LOT OF MATH) to come up with a number that sums up for lenders how risky it is to lend to a certain individual.

So what makes up a FICO score?  There are five basic parts to a FICO score.fico-score-percentages

The largest part of the score, 35%, is based on payment history.  Were payments made on time; were they made, but not on time or were they not made at all.  Payment history can go back as many as 7 years on a credit report, so one missed payment can hang out there for a long, long time. Positive information stays on even longer, so YAY!

The next largest part, 30%, is based on what’s called utilization. This is also called a Debt-to-Credit ratio.  It basically means how much of your available credit has been borrowed.   For example, let’s say that I have a credit card with a $1000 credit limit.  Until I use that card, I have $1000 credit and no debt.  If I charge $300, now I have used about a third of my credit, so my utilization would be 30%.  Anytime I have more than half of my available credit in use, it can begin to affect my score negatively, even if I’m making all my payments on time.  So carrying a lot of debt can hurt your credit rating in and of itself.

Third is length of credit history at 15%.  This is how long accounts have been open.  Long term loans like mortgages and student loans can help in this area, because most people pay those on time.  But even a credit card that you have had and kept in good standing for a long time can help.

The next is credit mix, at 10%.  This takes into account whether or not a person has more than one type of account.  Having more than one type of loan, and managing that situation well can help to improve your credit in this area.  So having a credit card and a student loan, or a car loan and mortgage can boost your score more than if you only have a credit card or only have a mortgage.

The last one is new credit, also at 10%.  This one looks at newer accounts a little more closely to be sure that a person is managing their new credit well. Typically this goes until an account is 6-12 months old, to make sure the borrower is able to manage that new debt.

If you don’t know your FICO score, there are a couple of ways you can get it.  One is to go to and pay for it. Many creditors offer their customers free access to their FICO scores as well, so you may be able to get it that way.

There are other credit scores out there besides FICO, but they are not all the same.  There are websites that offer a free credit score, but keep in mind their criteria may be different.  However, they may get you in the ballpark if you have no idea what your credit score is.

If you want to work on your credit or need help looking over your credit situation, the counselors at the Center for Financial Resources are here to help.  If you’d like a Credit Report Consultation contact us at 1-888-258-2227 or online at

Written by Sylvia Selgestad, Financial Counselor and Educator

Photo credit:

LSS Center for Financial Resources
Consumer Credit Counseling Service | Housing Resources | Sharpen Your Financial Focus | Financial Fitness Education
705 East 41st Street, Suite 100 | Sioux Falls SD 57105-6047
605-330-2700 or 888-258-2227
Strengthening Individuals, Families & Communities

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