The first time I heard the term FICO, I had no idea of it's meaning. Simply put, it's your credit score. A California-based company called Fair Isaac Corporation first developed FICO. FICO scores place a value on the types of accounts you hold and your credit history. The FICO scoring scale ranges from 300 to 850. The majority of people in the United States have FICO scores over 600.
There are several factors that determine your FICO credit score. First, your payment historythis counts for a whooping 35%--the most of any other factor. If you pay your bills on time, you are scored as great, but if you pay your bills late on a consistent basis you are scored as bad. And if you are referred to a collection agency, this is even worse, and if you declare bankruptcy, this the worst rating of all.
The second factor taken into consideration for your FICO score is exactly how much money you owe, as well as the amount of credit that is currently available to you. They will add up all of your outstanding loans, such as car loans, mortgages, and even school loans and then compare that number to your annual salary. Then, they will add up the amount of credit available to you, and compare it to what youre currently using. People that use all of their available credit (for example, if all of your credit cards are maxed out) will rate lower than those who dont. These factors are worth 30%.
The third factor is how long is your credit history. The longer you have had credit, the higher your FICO score will be. In addition, if youve had a long-standing credit agreement with one party, youll do even better on this aspect of the scoring process. This third factor counts as 15% toward you final score.
The fourth factor taken into consideration is the type of credit mix that you have. For example, do you have only unsecured credit loans (high risk), or do you also have some solid secured loans such as mortgages and automobile loans? People with a good mix of credit have higher FICO scores. This fourth factor counts only 10%.
The last factor in the rating is the amount of new loan or credit card applications that you have filled out. If you have filled out a lot recently, this will hurt your score because it puts lenders on alert that something may be wrong. This part of the score is worth 10%.
Lenders will typically look at employment, income, length at current residence, and marital status, but your FICO score will not be affected by these factors. Having a bad FICO score should scare anyone who plans on borrowing money for the future. If you do have a low FICO score, this could mean high interest rates, extra mortgage insurance when buying a home, or in some cases denial of the loan.
Its a good bad idea to get a copy of your credit report 6-12 months before applying for a large loan, so you can look over your history to make sure that there are no discrepancies. If you do find inaccuracies, contact the Credit Reporting Agency in writing; they have 30 days to investigate it, and then correct it if they find truth to your claims. You should also ask for a revised credit report; they are required by law to supply you with one if an inaccuracy is found and corrected.
If you would like to get more credit information you can visit our website which contains many credit resources. http://www.my-credit-report.info
This article is copyright 2005, but can be freely reprinted, as long as no changes are made, including hyperlinks.