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Fair Isaac Corporation Credit Or FICO Score
By: Roy Thomsitt
As I am not from the US, I had no idea what FICO meant before researching it.
FICO stands for Fair Isaac Corporation, a company based in California. FICO, put
simply, is a person's credit score. A credit score can be used by a potential
lender in making a judgement on whether to grant you credit or not, for example
when you apply for a new credit card or home mortgage. Therefore, if you are in
the US, the FICO score is very important to you. What Does a FICO Score Do?
A FICO score places a value on the types of credit accounts you hold or have
held, and your credit history in maintaining those accounts. The FICO score
scale ranges from 300 to 850, with the majority of people in the United States
in the 600 - 850 range.
Factors Which Affect Your FICO Credit Score
There are 5 factors in all which determine your FICO credit score:
1. Your payment history.
This counts for a very significant 35%--the most of the FICO score factors. As
you would expect, paying your bills on time is gets you a good score, while
paying them late on a consistent basis is will mark down your FICO score. If you
have had debts referred to a collection agency, that is worse still, while
declaring bankruptcy is the worst of all.
2. How much you owe.
Another obvious factor that FICO will take into account in arriving at a credit
score. This accounts for another 30% of your total FICO score. It is not just
what you owe already that affects your FICO score. Also taken into account is
the amount of credit available to you. For example, if you have a credit line of
$5000, but have so far only used $1000, that will be taken into account.
Your total amount of credit will be totalled, and compared to your annual
income. So, loans such as car loans, mortgages, credit cards, store cards, will
all be added together. Those who use most or all of their available credit will
get a lower rating for this part of the FICO score calculation.
3. Length of credit history.
Another important factor that makes up 15% of your FICO credit score is the
length of your credit history. The longer your credit history, the better for
your FICO score. Additionally, though, a long history with any particular lender
will be good for your credit score.
4. Type of credit mix.
The fourth factor taken into consideration is the type of credit mix that you
have. For example, do you have only high risk unsecured type credit, or do you
also have some solid secured loans such as a home mortgages? Those consumers who
have a mix of credit have higher a FICO score. This fourth factor just counts
for 10% of the total FICO score.
5. Number of new credit applications.
The last factor in the FICO rating is the amount of new applications that you
fill out. If you have recently filled out a lot of credit applications, this
will hurt your score because it puts lenders “on alert” that something may be
wrong. This part of the score is worth 10%.
Lenders themselves will normally look at employment, income, length at current
residence, and marital status, but these do not affect your FICO score. If you
intend to borrow in the future, you do need to pay attention to your FICO score.
If your FICO score is low, this could lead to higher interest rates, extra
mortgage insurance when buying a home, and in some cases denial of the loan.
If you plan to take out a major loan, such as a home mortgage, it could be a
wise move to get a copy of your credit report 6 months before you plan to apply.
That will give you time to look over your history, to ensure there are no
discrepancies. If you find inaccuracies, contact the Credit Reporting Agency in
writing. They will have 30 days to investigate it, and then correct it if they
find your claims are true. You may also want to ask for a revised credit report;
they are required by law to supply you with one if an inaccuracy is found and
corrected.
About the Author:
Roy Thomsitt is the owner and part author of http://www.eliminate-credit-card-debt-now.com |
