| 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.
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