[W]hen we think about credit reports and scores, we tend to think of the three major credit bureaus Equifax, Experian, and TransUnion. All three of these companies do collect information about your past and present credit accounts and do issue credit scores upon request. However, if you want to get a major financial deal such as a home mortgage loan then you need to know more about Fair Isaac Corporation. The company created and manages the FICO credit score range that so many people hear about these days.
FICO provides a score based on information from all available credit reports, which some lenders really want to know. For example, some people might have a clean TransUnion report but a litany of credit problems reported on Equifax. Representatives can issue anywhere from 300 to 850 when using a FICO credit score range.
Credit scoring formulas are pretty similar whether your potential lender is using Equifax, Experian, TransUnion, or requesting Fair Isaac’s assistance. The lower your score, the more of a credit risk you present to your prospective lender. The higher the credit score, the better financial risk you pose. Hence, you will be much more likely to receive a loan and get favorable interest rates with a FICO score of 700 or higher.
The Fair Isaac credit scoring formula assigns value to several aspects of your financial history. Thirty-five percent, or about one-third, of your FICO score is directly related to the timeliness of your payments. If you pay bills late or not at all, your credit rating plummets. If you consistently pay your bills on time, you are on the way to having a top tier FICO rating.
Thirty percent, also about one-third, of your Fair Isaac rating depends on your utilization of existing credit accounts. If you have $10,000 of available credit card limits and owe $5,000 or more on your accounts, then your credit utilization is high and decreases your score. Keep all balances to 50 percent or less of your available credit limits; about one-third utilization is even better.
Fifteen percent of your FICO rating can be attributed to the length of your credit history; the longer you have successfully used credit the better off you are financially. Ten percent of your score is determined by whether you have a diverse range of accounts. Lenders want to see you responsibly using credit cards, secured loans, and unsecured loans.
The final 10 percent of your Fair Isaac score is determined by how many recent credit applications you have completed. If you have applied for a lot of credit recently, you look financially desperate and your FICO rating will plummet. Fortunately, the score damage ends after about six to 12 months and the record of your credit applications only remains for two years.
[M]ost of the time you struggle to make the minimum monthly payments on your credit cards. Now, you find yourself with extra money on hand and you wonder which cards to pay. Maybe you worked overtime or got a bonus, and you want to do the responsible thing with the money and pay down debt. […]
[I]n a world where credit is easily obtained, it’s far too simple for people to get into debt. Much more difficult is learning how to save. This practice should begin in childhood so that it is firmly ingrained in a person’s habits when they reach adulthood. When to Start Teaching about Savings You should teach […]
[M]any people become co-signers as a favor to a family member or friend who doesn’t have a credit history. After some time, they may want to take their name off the account. This is not always an easy fix, and it may have an impact to both people’s credit. The Process Generally, you have two […]
[F]or many people, they can’t live without their cell phone. If they have a smartphone, they likely use it to do much more than just talk or text. While having a cell phone can be a good thing, it can also cause problems for your credit score. 1. Pay Your Bill If you fail to […]
[A]fter the initial approval for a home loan, you may be feeling pretty confident about moving into your new home. However, there are some easy ways you can mess up your approval, causing your mortgage to fall through. 1. Adding Extra Income If you have more money in your bank account than what comes from […]
[S]ummertime is the time for beautiful weddings, followed by fabulous honeymoons. After the end of the vacation, you start your new life as a couple. If you haven’t already had the talk about money – and you should have, now is the time to do so. It’s important to start off a new marriage on […]
[A]sk almost any expert, and they’ll tell you the easiest way to build credit is to get a credit card and use it responsibly. However, some people don’t like the idea of using credit to pay for things, so they want to find another way to build their credit history. 1. Ask Your Landlord to […]