My FICO Score and what is a Good One?
What is my FICO score? It is a type of credit score that was named after the company that came up with the idea. It is a number that tells lenders whether or not the person is credit worthy and if he/she will pay his/her debts. FICO stands for Fair/Isaac Corporation. The score is calculated from the consumer credit files of the person in question. A person with a higher FICO score has a better possibility of receiving a better interest rate on any type of loan or mortgage. It also serves to guarantee a higher credit limit.
What is my FICO credit score for? It is used to measure the possibility of the person paying off the loan by the agreed upon terms or of defaulting on the loan. They do not discuss the manner in which credit scores are calculated. They are a big mystery to everyone. Some things are known, however and these are:
• Payment history (whether or not the person paid on time is important; late payments cause the credit score (FICO) to drop. If a person pays his/her bills on time, the score improves. (This usually counts for 35% of the score).
• Credit utilization (the amount of credit card debt compared to the amount of credit limit available) usually counts for 30% of the score.
• A person can improve the credit score (FICO) by paying off any debt owed.
• Applications for more credit or opening of more lines of credit will lower the credit score (FICO).
• Closing old credit lines will also lower the credit score (FICO).
• 15% of the score is calculated on the length of a person’s credit history.
• 10% of the score is calculated on the type of credit a person has.
• 10% of the score is calculated on any recent credit inquiries. All credit inquires will be recorded and kept on the consumer’s record for a two year period.
• Any money a consumer owes because of a judgment, lien, or other legal matter can have a bad effect on the credit score (FICO).
• Sometimes having more than one new credit account can have a bad effect on the credit score (FICO).
What are the ranges of my FICO score? FICO numbers/scores range between 300 for the lowest and 850 as the highest. A consumer actually has two FICO scores because there are two national credit bureaus (Equifax and TransUnion), and each uses its own database. There is another credit bureau (Experian) and it uses yet another score (330-830).
Can I get my FICO credit score for free? – The answer is no. U.S. residents (legally) are entitled to one free copy of his/her credit report annually from each of the credit bureaus. They do not contain the consumer’s FICO score. That is recorded separately and is not given to the consumer free.
Business magazines regularly publish articles regarding the FICO scores of American consumers. At time they may make it seem as if there is a large percentage of Americans with good credit scores when the reality is that signals show that the number of people who are declaring bankruptcy or defaulting on their loans is growing monthly.
How can I build my FICO score? – With the financial crisis expanding all over the world today, American consumers seem to be working harder to keep their FICO numbers as high as possible. They are attempting to pay their bills on time and not applying for new credit or asking for higher credit lines. Most consumers are working to keep their credit card balances as low as possible.
On the flip side, consumers are met with much more stringent requirements when applying for credit today than they did prior to the beginning of the financial problems. Today, the consumer finds he/she needs a FICO score at least 720 in order to get a good rate on any line of credit.
Any FICO score higher than 720 is considered excellent. Below 700 and down to 600 is considered good. Below 600, a consumer falls into the fair or poor range.
How can I get my FICO score to go higher? – you can do several things.
• Settle judgments
• Pay outstanding medical bills or make payment arrangements.
• If a settled judgment is still on your report you need to contact the credit bureaus and have it removed.
• Apply for the good credit cards.
• Don’t apply for a lot of cards because this will bring your FICO score down even lower.
• If you have a very low score you can get a secured account. This is one backed up by collateral (usually a deposit in the bank).
• Once you get a credit card, use it well. Charge only what you can pay off each month.
• Check your credit reports for errors. Fix credit reporting errors by reporting them to the credit bureau for correction. Legally, the credit bureaus must make corrections but the reality is that many times they do not unless they are pressed.
• It is best to have less than 10% of your credit in use. The less debt you have, the better off you are.
• You can make small payments all through the month and not wait until the payment due date to pay the bill. This makes a consumer look better to the creditor.
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