Personal finance

What you should know about your FICO Score

You have big plans for your future, and we want to help you make the most of it. High credit scores can translate into better rates on your student loans, auto loans, mortgages and credit cards. Read on to learn about some key concepts and get tips to improve your score.


Terms to know

Debt utilization ratio: Your debt utilization is a simple calculation that starts with (a) how much of your available credit you use, divided by (b) your total available credit. For example, if you have a credit limit of $12,000 for a certain card but only put $1,200 on that card, your debt utilization ratio is 10% (that’s $1,200/$12,000). Lenders like to see low utilization rates because they believe this predicts a higher likelihood of repayment. When it comes to any debt ratio, you can make a change by decreasing your utilization or increasing your available credit.

Amount owed: 30% of your FICO Scores is determined by “amounts owed,” which FICO considers in relation to your debt utilization ratio. Amounts owed includes all types of debt, including credit cards, student loans, practice loans, mortgages, etc. For example, if you owe $80,000 in student loan debt and have another $5,000 of debt you’re carrying on a credit card from month to month, your total reported amount owed of $85,000 will be factored into your scores.

Credit cards vs. student loans

You might have heard that a large credit card balance will likely have more impact on your FICO Scores than a large student loan balance. But why?

FICO Scores consider that $5,000 credit card balance differently than the $80,000 in student loan debt. Student loan debt is a type of “installment debt,” where you pay back a fixed loan amount on a predetermined payment schedule. Credit card debt is a type of “revolving debt,” where your minimum payment due is determined as a percent of your outstanding balance as of the statement date.

“Revolving credit utilization ratio” is influential in determining your FICO Score. If your $5,000 credit card balance is on a credit card with a $6,000 credit limit (i.e., 83% utilization), then you’re inching closer to maxing out your card, a potential red flag for any lenders evaluating your credit. If, on the other hand, your $5,000 credit card balance comprises just 10% of your total credit limit of $50,000, research shows that your lower utilization pattern equates to lower risk and higher scores.

In contrast, installment loan debt such as student loans isn’t as heavily weighed by your scores, and establishing a pattern of responsibly paying down an installment loan over time can even help raise your scores.

Tips to improve your credit score:

  1. Establish a history of responsible, on-time payments. Making at least the minimum payment on time every month is equally crucial for student loans and credit cards, since payment history makes up the largest portion of your FICO Scores (35%). Consider setting up auto-pay so you never miss a payment. Starting autopay could even earn you cash. CommonBond offers a 0.25% interest rate reduction for automatic payments.
  2. Understand and optimize your debt utilization.
  3. Avoid applying for multiple credit cards within one year. Applying for three new credit cards will trigger three individual hard inquiries, each of which will stay on your credit reports for two years and may affect your FICO Scores for one year. The impact of an inquiry is usually fairly minor, but it depends on your credit profile. For instance, if you have a thin credit file with a short history, the impact of inquiries could be greater. Because FICO Scores only consider inquiries on your reports from the past year, you can time applications for new credit in a way that potentially avoids the negative effects of hard inquiries.

Have more questions about building your credit? CommonBond can help. Reach out to us at or give us a call at 800-975-7812.


Loans are subject to state law restrictions and are offered through CommonBondLending, LLC, (NMLS #1179500).

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