[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.
[S]aving money is an essential part of having good credit and being financially responsible. However, many people make some common mistakes when they open a savings account or start putting money aside. An Emergency Fund is Not the Same Thing As a Savings Account When you save money in a savings account, you often think […]
[M]illions of Americans will travel this summer on vacation. Many of them will go abroad while others will visit a different state or even a new city in their own state. No matter how far you travel or where you go, be aware that a vacation can have a negative impact on your credit. Identity […]
[L]easing a car instead of buying one is attractive to people for several reasons. You can trade it in when the lease is up, ensuring you drive a newer car all of the time. Monthly payments are usually lower with a lease than with a purchase. Plus, you don’t have to worry about trading it […]
[A]ccording to an Experian survey, more people are waiting to buy a home until their credit scores improve. In fact, almost half of those surveyed have delayed this decision. Your credit score has a huge impact on your ability to qualify for a mortgage, how much you can qualify for and how much you will […]
[T]he appeal of moving from renter to homeowner is strong for many. They dream of what it means to make that transition, but often fail to account for reality. There are certain times when you can’t or shouldn’t buy a home. When You have Bad Credit It’s almost impossible to get a home loan if […]
[Y]ou’re ready to begin the long process of rebuilding your credit. You know you have a lot to do to get to the point where you want to be, but you’re willing to start. Use all of the resources and tools at your disposal to help you get there faster and with fewer mistakes. Alerts […]
[M]ost furniture stores offer you some type of financing or credit to make a purchase. They know most people don’t have a lot of extra cash lying around, and buying furniture can be expensive. That’s why these stores offer credit cards, lines of credit and in-house financing. Before you go on a shopping spree, here […]