FICO scoring is used by lenders to figure out what your interest rate will be on loans you apply for. If you’re buying a house the types of mortgages available to you are based on your personal credit score.
That score is based on the FICO model and the interest you pay, as well as your monthly payment, is based on what your personal credit score number is.
Same with a car loan, there is always a premium on car insurance or even homeowners insurance. Your FICO credit score can affect what your rate will be be. Your FICO score can even affect your chances of employment.
FICO scoring is calculated from a multitude of different credit data and it is grouped into five different categories.
So that you will understand the basics of how FICO score is determined, the percentages below reflect how important each of the categories are in determining your personal credit score.
History (35%)
Your payment of history is the biggest indicator for a lender whether or not they should lend you money. Thus , it is also the biggest factor in creating your FICO score. This means that how many of your bills are unpaid or late has a the biggest affect on your credit. The more recent the late payment is, the worse the score. Bankruptcies will take it down even farther and stay with you for over seven years.
Outstanding Debt (30%)
How much of the total credit line is being used on credit cards and other revolving charges? High balances or more precisely, balances that are close to your credit limit can negatively affect your credit score. Most lenders think 40%-60% of maximum is ideal.
Credit History (15%)
This one surprised me. Just length of history. How long have you had an open credit line. If you have a large credit limit and it has been paid as agreed over a long period of time, this will work the best. Close your old accounts if they are having a negative affect on you.
Recent Pull of Credit (10%)
Every time you apply for any kind of credit you create an inquiry on your credit report. A lot of inquiries negatively affect your credit score. However, ordering a copy and checking your own credit report or personal credit score counts as a soft inquiry and does not go against your score.
Credit Types (10%)
How much is still owed on current mortgage loans, credit cards and finance companies compared with the original loan amounts? Also it’s important not to open a number of new credit card accounts just to increase your available credit. It will have the opposite affect and lower your score.
Tags: b, bad credit, Bad Credit Repair, business;finance, credit repair, f, fico, fico scoring, finance, i