Your
Credit Score is used by anyone loaning you money. Credit card companies,
home equity lenders, auto loan lenders and finance companies all use a
model created by Fair, Isaac and Co, the San Rafael, California company
that pioneered credit scoring 40 years ago and dominates the field today.
This score is most often known as FICO and serves as a snapshot of your
credit history.
A low score can raise the price of
your loan and a very low score can mean denial of your loan
completely. Here are the approximate percentages that determine your
FICO Score.
Payment history (35%).
The largest factor determined on your FICO score is your basic
payment history. The number of unpaid bills you have, any bills
sent to collection, bankruptcies etc... The more recent the
problem,
the lower your score.
Outstanding Debt (30%).
Are your cards maxed out? High balances or more precisely,
balances that are close to your credit limit can negatively effect
your score. Keep your balances below 30%.
Length of your credit
history (15%). How long have your
accounts been open? The longer, the better.
Recent inquiries (10%).
Every time you apply for credit of any kind, you create an inquiry
on your credit report. Lots of Inquiries negatively effect your
score.
Types of credit in use
(10%). Current loans from finance
companies. How many and how much.
Your score will range between 300
and 870. The higher the better. As your score increases, your credit
risk decreases. Exact numbers differ by lending institution
but the average high approval score is 680 or above. Often times
your score is taken from all three credit reporting companies
and the middle score or average score is used.
Depending on the lending
institution, your score can cost you. Some lenders will charge a
higher interest rate if your score is below 600
When you apply for credit your
score does not come directly from FICO. Instead each bureau has its
own version of the rating system with its own name.
Equifax is called Beacon
Trans Union is Empirica
Experian is Experian/Fair Issac
A credit score of 680 or above can
save you money, especially for home loans. If you are considering a
significant loan you will want to be sure to check your credit
reports first. If negative items appear on your report you have two
choices. Live with it for 7 to 10 years or dispute these items. For
more information on repairing bad credit click here now!
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There are 3 main credit bureaus that report credit history.
Experian provides a single report with your information from
all three national credit bureaus in one easy to read and
compare format.
