I wrote the other day about the relationship between delinquency rates and FICO credit scores, but I didn’t really touch on what all goes into determining your credit score. According to Fair Isaac (the company responsible for FICO scores), here’s a rundown of what goes into your credit score, and the relative importance of each component:
Payment History – 35%
Amounts Owed – 30%
Length of Credit History – 15%
New Credit – 10%
Types of Credit Used – 10%
So if you want to maintain a high credit score, you’ll obviously want to pay on time and keep your credit utilization low (i.e., keep your balances low relative to your credit limits). It’s also a good idea to keep old cards open even if you don’t use them — after all, this increases the average age of your cards, and also decreases your utilization.
Clearly, applying for a bunch of new cards to take cash in on 0% balance transfers, free credit card miles, or cash signup bonuses can negatively impact your FICO score, but it’s a relatively small hit when compared to things like payment history and outstanding balances.