FICO Scoring System 2 – Outstanding Debt


Your outstanding debts attribute to 30% of your FICO composition, almost as large as payment history. Equal payments made over a period of time, also known as installment loans such as an auto or mortgage loan, should not be your top priority in this category. Getting ahead on these payments will not benefit you as much as revolving accounts, although we do not encourage you to get behind on your payments.

Prioritize Revolving Accounts

Revolving accounts is where FICO focuses its attention on outstanding debts. The most common revolving account that you probably have is a credit card account. Your credit card balance has a direct affect on your credit score. The higher your balance and closer to the credit card limit you are, the lower your credit scores will be and vice versa.  Your credit score can change by 100 points just because of your credit card balance.

No Long-Term Effects

The beauty of revolving accounts is once you pay the balance off, FICO will not look at your history of high balances. Do not put too much emphasis on the past; focus on paying off your accounts as soon as possible and keeping the balances low.

Playing the Game

We know it may not be possible for everyone to pay off their credit cards each month, but there is a certain threshold you can try to reach to better your credit scores. For optimal results, the FICO model requires your credit card balance to be less than 20 percent of the card’s limit. This means if your credit card has a $3000 limit, then you need to keep the monthly balance below $600. By remembering and following these tricks, you will be able to maximize your credit scores.