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 What
is a FICO?
A FICO score is a credit score developed by Fair Isaac & Co.
Credit scoring is a method of determining the likelihood that
credit users will pay their bills. A credit score attempts to
condense a borrower’s credit history into a single number and is
widely accepted in credit making decision by lenders.
Everyone should know their FICO score.
Why? Your FICO has huge impact to interest rate
you pay.
The interest rate you pay can be twice as high for a 550 FICO
score versus an 800 FICO.
Don’t know where to turn?
You do now. Call us (815.0411) we are Resource Specialists and
we will fully educate you.
FICO scores places a value on the types of accounts you hold, as
well as your credit history. The formula that determines your
FICO scores, however, is not disclosed to the consumer.
The FICO scoring scale runs from 300 to 850. The vast majority
of people will have scores between 600 and 800. A score of 720
or higher will get you the most favorable interest rates on a
mortgage, according to data from Fair Isaac Corp., a
California-based company that developed the credit score. (Its
own score is called the FICO score.)
 WHAT
ARE THE KEY FACTORS IN A FICO SCORE?
The 5 most important factors:
What Exactly Goes Into a FICO Score?
Pretty much everything in your credit report,
with different kinds of information carrying differing weights,
says Fair Isaac consumer affairs manager Craig Watts. The model
looks at more than 20 factors in five categories.
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Payment History is the most important factor
for your FICO score is how you've paid your bills in the
past, placing the most emphasis on recent activity. Paying
all your bills on time is good. Paying them late on a
consistent basis is bad. Having accounts that were sent to
collections is worse. Declaring bankruptcy is worst.
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Amount of money you owe and the amount of
available credit is the second most important area for a
FICO score is your outstanding debt -- how much money you
owe on credit cards, car loans, mortgages, home equity
lines, etc. Also considered is the total amount of credit
you have available. If you have 10 credit cards that each
has $10,000 credit limits, which are $100,000 of available
credit. Statistically, people who have a lot of credit
available tend to use it, which makes them a less attractive
credit risk. Carrying a lot of debt doesn't necessarily mean
you'll have a lower score. It doesn't hurt as much as
carrying close to the maximum. People who consistently max
out their balances are perceived as riskier. People who
never use their credit don't have a track history. People
with the highest FICO scores use credit sparingly and keep
their balances low.
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Length of credit history is the third factor
of your FICO credit score history. The longer you've had
credit -- particularly if it's with the same credit issuers
-- the more points you get.
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Credit type and mix is fourth factor. The
best FICO scores will have a mix of both revolving credit,
such as credit cards, and installment credit, such as
mortgages and car loans. Statistically, consumers with a
richer variety of experiences are better credit risks. They
know how to handle money.
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New credit is the final category with your
FICO score, is your interest in new credit -- how many
credit applications you're filling out. The model
compensates for people who are rate shopping for the best
mortgage or car loan rates. The only time shopping really
hurts your FICO score, is when you have previous recent
credit stumbles, such as late payments or bills sent to
collections.
What to Do?
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Pay your bills on time. Late payments and
collections can have a serious impact on your score.
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Do not apply for credit frequently. Having a
large number of inquiries on your credit report can worsen
your score.
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Reduce your credit-card balances. If you are
"maxed" out on your credit cards, this will affect your
credit score negatively.
-
If you have limited credit, obtain
additional credit. Not having sufficient credit can
negatively impact your score.
-
Aged accounts are valuable.
What doesn't count in a FICO Score?
The FICO scoring model doesn't look at:
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age
-
race
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job or length of employment at your job
-
income
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education
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marital status
-
whether or not you've been turned down for
credit
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length of time at your current address
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whether you own a home or rent
A lender most likely will consider some or all
those factors when deciding whether to approve a loan
application, but they aren't part of how a FICO score is
calculated.
FICO Credit scores are not perfect
The major drawback to FICO credit scoring is
that it relies on information in your credit report, which is
quite likely to contain errors. That's why it's critical that
you check your credit reports annually, or at the very least
three to six months before planning to buy a house. That will
give you sufficient time to correct any errors before a lender
pulls your FICO score.
What if there is an error on my credit report?
Report it to the credit bureau. The three major
bureaus in the U.S., Equifax (1-800-685-1111), Trans Union
(1-800-916-8800) and Experian (1-888-397-3742).
Need help getting your credit report repaired?
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Overwhelmed? Let us Help One of the many valuable
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terms for your new home loan.
No cost or obligation consultations are available at your
convenience.
The MarkWatterson.com Team
801.815.0411
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