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How are FICO Scores Calculated

FICO Scores are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).

Your FICO Scores consider both positive and negative information in your credit report. The percentages in the chart reflect how important each of the categories is in determining how your FICO Scores are calculated. The importance of these categories may vary from one person to another.

What categories are considered when calculating my FICO Score?

Payment history (35%)

The first thing any lender wants to know is whether you've paid past credit accounts on time. This helps a lender figure out the amount of risk it will take on when extending credit. This is the most important factor in a FICO Score.

Credit Utilization (30%)

Having credit accounts and owing money on them does not necessarily mean you are a high-risk borrower with a low FICO Score. However, if you are using a lot of your available credit, this may indicate that you are overextended—and banks can interpret this to mean that you are at a higher risk of defaulting.

Length of credit history (15%)

In general, having a longer credit history is positive for your FICO Scores, but is not required for a good credit score.

Your FICO Scores take into account:

How long your credit accounts have been established, including the age of your oldest account, the age of your newest account and an average age of all your accounts

How long specific credit accounts have been established

How long it has been since you used certain accounts

Credit mix (10%)

FICO Scores will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. Don't worry, it's not necessary to have one of each.

New credit (10%)

Research shows that opening several credit accounts in a short amount of time represents a greater risk—especially for people who don't have a long credit history.

Source: FICO

How Long Does It Take to Build Credit?

If you're just starting out, you'll need at least one credit account open and reporting to at least one of the major credit bureaus (Experian, TransUnion and Equifax) for at least six months to generate a FICO credit score. FICO® Scores☉ are used by 90% of top lenders.

With the VantageScore, however, you can get a score as soon as the first time your new account gets reported to the credit reporting agencies.

But having enough credit history to get a credit score is just the beginning. While your credit score is an important indicator of credit health, having a thin credit file —a credit report with fewer than five credit accounts—can still make it challenging to get approved for favorable financing terms.

As you add more credit accounts over time and use them responsibly, you'll likely see an increase in your credit scores, and your credit profile will become more solid. Depending on how often you take on new credit, it can take several years to build an excellent credit history.

Source: Experian Credit Bureau

Why Your Credit Score Is Important

You can leverage great scores into great deals — on loans, credit cards, insurance premiums, apartments and cell phone plans. Bad scores can hammer you into missing out or paying more. Having good or excellent credit can provide significant savings over your lifetime. For example, you could save:

• $86,065 in interest on a $350,000 mortgage with a credit score of 750 or above compared with someone scoring 630-689, according to NerdWallet calculations using interest rates for a 30-year fixed-rate loan in July 2023.

• $3,251 in interest on a five-year, $41,000 auto loan with a score of 720 or above, versus someone scoring 660-689, from FICO calculations using July 2023 rates.

• $885 in interest on a three-year personal loan of $10,000 when scoring 720 or above compared to someone scoring 630-689, based on anonymized offer data from NerdWallet's lender marketplace. Since credit scores have become such an integral part of our financial lives, it pays to keep track of yours and understand how your actions affect the numbers. You can build, defend and take advantage of great credit regardless of your age or income.

Source: NerdWallet

Offsetting Payhist Fees with Cashback

Open checking account or credit builder account with Payhist and use the debit card for your daily transactions in order to receive cash back. The more you use your debit card the more you earn cash back to your account hence offsetting your monthly fees provided you use your card in merchants offering cash back with Payhist account. Payhist continues to add merchants offering cash back in order to maximize cash back to customers.

Source: Payhist

How Long Does It Take to Rebuild Credit?

The short answer is that it usually takes at least a year to recover from bad credit, assuming you do everything right. But it all depends on your starting point, the length of your credit history and the moves you make going forward.

Rebuilding means different things to different people, depending on their:

• Expectations: If you’re aiming to return to excellent credit, for example, it will take longer to get back there than it will to reach fair credit. In other words, what you consider to be a fully rebuilt credit score will affect the timeline.

• Credit History: Even relatively minor mistakes can push someone with limited credit into the “bad credit” category. But it would be just as easy to reverse course in that case. On the other hand, the kinds of serious mistakes that require rebuilding a long and responsible credit record take far longer to recover from.

• Next Steps: The credit-rebuilding process will be slow if you continue to make mistakes. So, follow the instructions from above to avoid falling back into old habits.

Source: WalletHub

Take Advantage of Payhist Benefits

If your goal is to have a checking account without paying fees

• Open checking account

• Spend at least $500 per month to avoid fees

• Use debit card to all merchants with cashback

If your goal is to maximize cash advance:

• Open checking account with cash advance

• Use debit card to all merchants with cashback in order to offset account monthly fee

• Pay cash advance on time and cash advance credit line will start increasing at month 6

If your goal is to build credit:

• Open credit builder account

• Use debit card to all merchants with cashback in order to offset account monthly fee

• Pay cash advance on time and cash advance credit line will start increasing at month 6

• Your payments will be reported to credit bureaus (Transunion, Experian and Equifax)

If your goal is to send money abroad to your loved ones:

• Open account for remittance

• Send money to your family and friends

Source: Payhist