[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.
[I]f you are like many people, you made a New Year’s resolution to improve your finances or rebuild your credit for 2017. While this seems like a worthy goal, it won’t gain much steam unless you have a plan. You must determine exactly what you will do to achieve your goal and start working on […]
[A]re you trying to rebuild your credit? Are you tired of living from paycheck to paycheck? If you have set a goal to become more financially stable in the new year, you need to have a plan. Here is one that almost everyone can follow to achieve success. 1. Set Long-term and Short-Term Goals Before […]
[G]etting a credit card can be a sign of “growing up” for many. It feels good to know you have earned your way to having credit or to have rebuilt your credit to the point where you can be trusted with credit again. However, not everyone handles this new responsibility in the best way. Here […]
[B]eing self-employed often brings a sense of independence and freedom. You have a flexible schedule, and you are in control of how much you earn and when you work. However, it also comes with a few negatives, especially when it comes to your credit history and credit rating. Here are some ways to protect your […]
[I]f your goal is to be financially independent and able to enjoy life, you must take control of your money. Here are a few tips to help you in this process so you can live the kind of life you want. Understand Your Income This is the fun part. Figure out how much income you […]
[I]t can seem as if the ghouls and goblins of the finance world come out in full force around the holiday season. Hackers and identity thieves know more people shop from Halloween to the New Year, which leaves them more vulnerable. Here are a few tips on how you can protect your identity now and […]
[A]s the temperatures drop, heating costs rise. If you live from paycheck to paycheck, even a slight increase may leave you wondering how you are going to manage all of your bills. The high utility bills can hurt your credit if you’re not careful. Too Many Bills, Not Enough Money If increasing utility costs mean […]