| 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.
|
