pro finance blog
Menu
  • About Me
  • Hire Me
  • Contact Me
  • Submit a Guest Post
    • Privacy Policy
    • Disclaimer
Menu
FICO Scoring System

How FICO Scoring System is Essentially Linked to Your Lifestyle

Posted on February 7, 2016July 11, 2022 by Tina Roth

None of us is alien to the fact the credit history affects our lives in many ways than we can imagine. In my previous article, I discussed how one can use his credit card to improve his credit score.

The problem is, people look at their credit scores in isolation. They shouldn’t. The scores that we have on our credit reports can be improved if we make it a goal to raise it, and bring our lifestyle in sync with this goal.

FICO Scoring System

In this article, I’ll lay down some suggestions that can make it happen.

Living condition and credit utilization

Credit utilization is one of the few important metrics that FICO considers when assigning you a score. I discussed credit utilization in my previous article. In case you are not very familiar with the idea, you can give it a look.

The perfect credit utilization rate is between 10 and 20%. More than 20% is safe but not recommended. More than 30% is a risk alert. The less you use your credit card, the better. But at the same time, your credit limit should be high. Now unless you bring changes in your lifestyle, the credit limit-lower usage combo is difficult to maintain.

That’s because a high credit limit is tempting. Preventing yourself from spending freely, when you are at a shopping mall, or in a restaurant is not easy at all. But as I said, lifestyle changes are necessary for a better credit score.

Student loan

We have the best schools in the world, but the course fees of undergraduate and graduate programs are often quite high, and getting a scholarship is incredibly difficult. The question is if you take a loan, would that affect your FICO score.

There’s no definitive answer because the graph below shows it’s perfectly possible that someone has a student loan of over $50000, and at the same time, getting a score of 800 on his credit report.

FICO may not treat a student loan any different than it treats a mortgage loan, but the delinquency rate of student loan has been increasing at a rapid pace. So, live a frugal life and look for additional earning opportunities, so you pay off the loan as quickly as you could.

Understand the difference

It’s less of a lifestyle change and more of a perspective change. Most people make a mistake. They don’t discriminate between instalment loan and recursive loan. Remember, FICO considers your payment history when it assigns you a score. In fact, your payment history makes up 35% of the overall FICO score.

When FICO checks payment history, it considers both instalment loans as well as revolving loans such as the credit card debt. However, it takes instalment loans more seriously. If you don’t promptly pay down the revolving loan, then that’d affect your credit history, but being a defaulter on an instalment loan such as a mortgage loan or a student loan might damage your credit score severely.

Hence, if you have a mortgage or student loan to pay, make it your immediate priority, and shift the focus from your credit card outstanding balances, even though the latter is important too.

Equal importance

What I am going to advise in this paragraph, might appear to be in contrast with what I’ve advised in the previous paragraph. My advice is give equal importance to installment loan and revolving loan. It’s true that an installment debt is different from a revolving debt. It’s also true that not paying an installment debt can damage your score seriously.

Nevertheless, if you ignore the revolving debt, you’d score low in the credit mix category. A person with impressive credit mix is one, who pay down all sorts of debts, without discriminating. So, acknowledge the difference, but don’t delay paying off any of these two types of debts.

Account maintenance duration

You need to show FICO that you are consistent. One of the factors, considered by FICO is the duration of your account. The rule of the thumb is, the longer the better. This simply means if you are new to credit, in other words, if your account doesn’t have a long history, then FICO is likely to give you a low score.

Don’t close an account if you have been maintaining it for long. For the same reason, make sure you don’t have a dormant account. If you do, then activate that account asap. Change yourself if you are an impulsive and forgetful person. Otherwise, your credit score will decline.

Summing up

This article explains how FICO score is linked to factors related to one’s lifestyle. Being frugal, vigilant and consistent can help you to have a shiny credit score.

Category: Credit Score

2 thoughts on “How FICO Scoring System is Essentially Linked to Your Lifestyle”

  1. Dr. Margaret Aranda says:
    February 11, 2016 at 9:59 am

    So many women stay married to their spouses that they really don’t love any more, due to financial constraints only. And for the children.

    So, here is a woman who “takes the big plunge” and divorces her abusive husband, and he throws her under the bus. She can not work due to disability, and he stops all her credit cards. Leaves balances unpaid. Her Social Security checks are barely enough to feed herself and her children, and he does not pay Child Support for two years. So she racks up her OWN credit cards she’s had since before the marriage.

    Eventually, the credit card balances are maxed out, she can’t even pay the minimum amounts, the collection agencies are calling her, and 5 years after filing for divorce, it’s still not over. She has no settlement but Pension Plans.

    She has debt, debt, repossessed car, forced sale on home, 2 years of no Alimony (until State garnished wages), tons of bills, and $300 leftover after bills. She even lost her daughter to him, through lies of child abuse. What can we tell her that will help as a long-term plan to improve her score say 5 years from now?

    P.S. Now we understand why women stay with their cheating husbands, and just sleep in separate rooms. Women have always been victims of financial need.

    Log in to Reply
    1. Tina Roth says:
      February 12, 2016 at 8:11 am

      You are so true. Financial abuse limits the woman from becoming independent.

      Log in to Reply

Leave a Reply Cancel reply

You must be logged in to post a comment.

About Me

finance blogger

The idea of starting a blog has been hitting me for long; I took it seriously after falling into a spiral of debt and recovering from it.

I have been anxious all through the financial difficulties. I see that same anxiety in the eyes of people, whose ill fate has put them at odd with financial repose.

It makes me compassionate. Out of this compassion and goodwill, I started this blog. I wanted to help all those, who are facing financial distress..




  • Stock Market
    Understanding the Gov Tech MarketFebruary 16, 2023
  • Phuket Real Estate
    Why You Should Invest in Phuket Real EstateJanuary 24, 2023
  • Corporate Governance
    Corporate Governance: What Are the 3 Core Principles of Good Corporate Governance?December 17, 2022
  • Successful Retirement
    How To Plan For Successful Retirement At 50: 5 Steps To Get Started OnNovember 4, 2022
  • Online Money Transfer
    Do You Still Transfer Money Internationally With Your Bank? There Are Better Online Solutions For ThatOctober 14, 2022
  • finance
    Important Roles of the Minister of FinanceSeptember 16, 2022
  • Avoid for New Businesses
    5 Forecasting Faux Pas to Avoid for New BusinessesSeptember 16, 2022
  • Affecting Pensions
    How Inflation Is Affecting PensionsSeptember 2, 2022

    ProFinance Blog is dedicated to help people who are struggling with their personal finances. We have learned the lessons first hand and know how real the struggle is. Being compassionate about the personal finances and blogging about is our way to help people know more about different situations and how effectively they can handle it. So take control of your finances now and take actions towards gaining financial freedom and security. Join us in the mission to self-educate, learn and help others by sharing valuable information on finances. Here you will find information, tools and techniques on various aspects of finances and learn how you can use the information and implement it to make your financial life better than ever.Join us in our mission to financial freedom.

    • Stock Market
      Understanding the Gov Tech Market
    • Phuket Real Estate
      Why You Should Invest in Phuket Real Estate
    • Corporate Governance
      Corporate Governance: What Are the 3 Core Principles of Good Corporate Governance?
    © 2023 ProFinance Blog | Powered by Minimalist Blog WordPress Theme