FICO Score 101
by:
Peter Kenny
Most people have heard of the FICO score, but don't really understand what it is. This is the mysterious score that creditors and lenders talk about in regards to credit approval. What exactly is this score and how is it determined?
The FICO score is named after the Fair Isaac Corporation, which is the organization that developed the score. It is a three digit number that determines how worthy an individual is of receiving a line of credit. The score ranges from 300 to 850. It is used by the three major credit bureaus, Experian, Equifax and Transunion, as the main method of scoring credit.
The exact formula that is used to come up with the FICO score is owned by the Fair Isaac Corporation, and is not public knowledge. However,the components of your credit history that are used in calculating your score are known:
Payment history 35%
It is important to lenders to know how responsible you are in paying your bills in a timely manner. Therefore, your payment history makes up the largest part of your credit score. Late payments, collections and bankruptcies can all have a negative effect on your credit score. The more recent the transgression, the more negative the effct is on your score.
Credit Utilization 30%
Credit Utilization refers to the ratio of the amount you currently owe to your total credit limit. If all your credit cards are fully maxed out, your score will be lower. The best rule of thumb to follow when it comes to credit utilization is to keep your credit card balances below 30% of your total credit limit.
Age of History 15%
The longer you've had credit the better it looks for you and the more it will positively effect your score. Creditors look at the length of your credit history to better predict what your future credit actions might look like.
Types of accounts 10%
The type of accounts you have is important. While there is no perfect formula for the kinds of credit accounts you should have, it is good to have loans as well as revolving credit. This part of your score plays a larger role when you don't have a lot of other information in your credit report.
Inquiries 10%
Submitting a lot of applications for credit cards or loans in a short amount of time creates multiple inquiries on your credit report. To a creditor, this could look like you are taking on a lot of debt or you are in financial trouble. Neither of these possibilities is desirable from a lenders point of view. The more recent the inquiries, the more of an affect they will have on your credit score.
If you are looking for ways to improve your credit score, these five areas are the ones for you to focus on.
About the Author:
Peter Kenny is a writer for Finance 123. Please visit us at
Low APR Credit Cards and
Consumer Debt Consolidation
No. of Times this article has been viewed :
363
Date Published :
Nov 15 2007
Most Recently Published Credit Management Articles as of
|
|
Jul 25 2010
Debt Collection: A Look Inside Collection Training
by
Michael Brazier
Learn what collectors are being coached on to better their efforts against consumers with accounts in collections. Use the information collectors are using against you to prepare and protect yourself when combating collection calls.
|
Jul 20 2010
Types of Credit
by
Michael Brazier
Establishing an educated position on different types of credit will enable you to make smart financial decisions and aid in deciding what steps you can take to improve credit.
|
Jul 16 2010
Credit Debt Solutions
by
Michael Brazier
New CARD Act to protect consumers has its loop holes and big banks are jumping through creating new terms and applicable fees. Learn how you can avoid these if-then scenarios and get out of debt in 5 years without hurting your credit.
|
Jul 14 2010
Credit Card Types: Unsecured
by
BMA Editorial Team 3
There are two basic credit card types: secured and unsecured. This article explores some of the issues associated with unsecured credit cards. First, what is an unsecured credit card?
|
Jul 14 2010
Are Credit Repair Companies for Real?
by
BMA Editorial Team 3
A lot of people need to repair their damaged credits. You can do this all by yourself or you can get help from several of the companies that assist in doing credit restoration. So how do these companies work?
|
Jul 14 2010
Credit Restoration Services Or Do It Yourself Credit Repair - Which One is Better?
by
BMA Editorial Team 3
At the end of the day, the choice is up to you. Your choice largely depends on your availability, personality, and priorities. It is best that you do some research and assessment before you decide...
|
Jul 14 2010
Credit Card Services - Advantages a Business Can Derive from It
by
BMA Editorial Team 3
If you want to make your business grow by earning more profits, you want to have a lot of customers including repeat customers coming into your store.
|
Jul 14 2010
How Do I Cancel My Credit Card?
by
BMA Editorial Team 3
One of the very best reasons for canceling some of those cards is that it reduces your temptation to use them. After all, you cannot put additional credit on something that you do not have. However, before you begin chopping up those unused credit cards, consider the following.
|
Jul 14 2010
Fix Your Credit Rating Through Credit Repair and Get a Good Credit Standing - Understanding the Fact
by
BMA Editorial Team 3
Apart from the importance of your credit report, you need to also understand all the vital facts of every aspect that you have to deal with, in order to go through the process of fixing your credit rating smoothly.
|
Jul 14 2010
Credit Restoration Services - Professional Help or Do-It-Yourself?
by
BMA Editorial Team 3
If your loan application has been denied by a creditor, you probably have a bad credit record. You might be thinking of ways on how to fix it now to gain approval of your loan applications.
|
Jul 14 2010
What is the UCC and How Does It Pertain to Secured Party Creditors?
by
BMA Editorial Team 3
Any secured party creditor should be familiar with the filing of a UCC-1. This is a form that is related to Section 9 of the Uniform Commercial Code (UCC). While the Code itself may be a lengthy one, it is really quite simple as it pertains to secured transactions.
|
Jul 11 2010
10 Tips to Get Out of Credit Card Debt
by
BMA Editorial Team 3
Being in debt can be an overwhelming experience and will definitely keep you up late at night if you are thinking about it too much. Below I have listed many tips to try and help you get out of credit card debt, and try to enjoy life even more.
|
Jul 11 2010
What are Credit Card Fees?
by
BMA Editorial Team 3
Credit card companies are in the business of making money. It really is that simple. They earn their money through two principle methods.
|
Jul 11 2010
Credit Repair: Helpful Tips and Advice on How to Improve Your Credit
by
BMA Editorial Team 3
Everybody has credit. It could be as simple as borrowing from your friends or families, or as serious as having loans and mortgages. The bottom line is you are spending somebody else's money for something you need to buy.
|
Jul 11 2010
Credit Restoration Companies - Different Strokes for Different Folks
by
BMA Editorial Team 3
Credit restoration companies have flooded the business world. You might find it difficult to find the right company that perfectly suits your needs that can attend to your specific credit repair requirements.
|
|
Search for ebooks on Management & Business