[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’ve recently graduated or plan to this summer, you may be planning to enter the world of being an adult. You’ll get a job, maybe an apartment and car, and probably open a bank account if you don’t already have one. You may also decide to get a credit card with your new income. […]
[W]ith summer comes plans for weddings, big beautiful bouquets, a gorgeous wedding dress, garden ceremony and many other unique plans. Of course, each of these items cost money, which can add up to thousands of dollars. What many couples fail to plan for as they dream of their wedding is how to start out marriage […]
[E]ven those with full-time jobs often end up struggling to pay their bills and protect their credit rating. They live paycheck to paycheck with barely enough left over to last until the next payday. With reports of the economy improving and a low unemployment rate, this may not make sense. One theory is that shifting […]
[P]eople look forward to summertime partially because they have a vacation planned. It’s a chance to get away and take a break from the stresses of life. Unfortunately for those who live on a tight budget, coming back from vacation may be a dose of reality they would just as soon forget. You can imagine […]
[I]f you’re about to graduate college and enter the workforce, you want to start out on the right foot. It’s all too easy to get caught up in the idea of a steady paycheck and make some bad financial decisions. Here are a few things you should do about your finances before you graduate. Think […]
[Y]ou have a bill to pay and you don’t have the money. Or your car broke down and you don’t have the extra funds to pay for the repair. One way to come up with cash when you need it is to sell something you own. However, it’s not always as easy as it sounds. […]
[A]s a teenager and even college student, you probably had your parents looking out for you. They helped with expenses even if you had a part-time job. Now that you have entered adulthood with a full-time job, you feel like a grownup. But have you grown up financially? You Know How to Budget A person […]