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5 things that matter most to your FICO score

Erica Sandberg

January 27, 2015

QHi Erica,

Did my score from a credit card start yet? I got my first and only credit card with a $500 down payment last week. Does it start now? I don't want my $500 to be in the bank forever. –Dan

ADear Dan,

Patience, my friend. It takes time to build a reputation, good, bad or middling. For that reason, your credit score — the most common being the FICO — will need about six months' worth of information before it can produce an accurate reading of how you're managing that credit card. Ask Erica

It all comes down to what is listed on your credit report. Presuming the bank that issued you the secured credit card sends data to the three major credit reporting agencies — TransUnion, Equifax, and Experian — your activity has been on those reports from the date it was granted. Place a call to make sure. If your card's activity isn't being sent to the credit bureaus, open a different account that does report to the credit bureaus.

Why do you need to make sure your card issuer is reporting to the credit bureaus? Because your  FICO scores, which range from 300 to 850, with 850 as the best, are based on the information on your credit reports. For that reason, you should get your reports for free once a year at AnnualCreditReport.com. Check one of your reports every four months, and look for and correct any inaccurate information, which can wreak havoc on a credit score.

So, if your credit reports are so critical, what is it that FICO cares the most about? Here is a breakdown of what FICO looks for:

1. Make on-time payments. Now that you have this brand new credit card, go ahead and charge with it. Take pains to send all payments in on time, though. Some 35 percent of your score depends on it. While you're at it, mind the due dates on all other bills, such as for utilities and cellphones. Unpaid balances often get sent to collection agencies, which usually report to the credit bureaus. Such overdue accounts will destroy a score, especially when they're recent.

2. Keep your balance low. Called the utilization ratio, this comprises 30 percent of your score. You don't mention what your credit limit with the card is, but it's important that you find out and keep you balance well below that amount. Paying the balance off every month is best, but at the very least you'll want to keep the debt to below 30 percent of the limit. That means that if you can borrow up to $1,000, keep at least $700 unused.

3. Time is your friend. You can't make time go any faster, but the longer you have and use credit well, the more positive information will go into your score. At 15 percent, a rich pattern of borrowing and repaying responsibly will edge your scores up. Keep your current account active for at least a year or two. Just consider the funds you put down as collateral as savings — a nice little safety net. You'll get all the money back when you close the account at a zero balance.

4. Vary your types of accounts. Proving that you can manage a variety of loans and lines of credit is 10 percent of a score. That's another reason to hang on to the card you have now. Add to it when you need more. Another credit card would be fine (and presuming that you've done all the right things, you can probably qualify for an unsecured account in as little as a year) or finance a purchase with a loan to indicate that you can meet installment payments perfectly.

5. Limit your applications. Finally, the last 10 percent calculates pursuit of credit. Applying for many accounts in a short span of time will make your scores go down a bit, because it makes you look desperate for money. All you need to know here is to take it easy.

After about a year, obtain your score from MyFICO.com for about $20 per report. If you follow the instructions above, your numbers should improve within a few months and will be excellent within a couple of years!

Got a question for Erica? Send her an email.