Bad Credit Mortgage Refinance - Should I, Shouldn't I?
It is a common financial scenario across households in the Western world. Multiple debts have started to build up: a car loan here, a department store loan there; a bank loan here and several credit cards there. While all may have seemed manageable...
Every company, whether big or small, needs to obtain a business credit card
As a business person working in a competitive environment, owning a business credit card is crucial, especially in today’s world where every credit card company is fighting for your business. If you are like many business owners that think that...
Fair Isaac Corporation Credit Or FICO Score
As I am not from the US, I had no idea what FICO meant before researching it. FICO stands for Fair Isaac Corporation, a company based in California. FICO, put simply, is a person's credit score. A credit score can be used by a potential lender in...
Store cards, credit cards and loans - how to borrow money effectively.
You don't have to have the lifestyle demands of Paris Hilton to need extra money these days. According to Credit Action, the total UK personal debt was 1,122 billion, a growth of about 10.5% over the previous year and in the UK and each adult in the...
The Ins and Outs of Credit Card Debt Settlement
Are you a self-confessed shopaholic who buys anything and
everything that you get your shopping addicted hands on? Such
thoughtless and impulsive buying will most likely result in the
accumulation of a bunch of junk that will simply collect...
Fair Isaac Corporation Credit Or FICO Score
As I am not from the US, I had no idea what FICO meant before researching it. FICO stands for Fair Isaac Corporation, a company based in California. FICO, put simply, is a person's credit score. A credit score can be used by a potential lender in making a judgement on whether to grant you credit or not, for example when you apply for a new credit card or home mortgage. Therefore, if you are in the US, the FICO score is very important to you. What Does a FICO Score Do?
A FICO score places a value on the types of credit accounts you hold or have held, and your credit history in maintaining those accounts. The FICO score scale ranges from 300 to 850, with the majority of people in the United States in the 600 - 850 range.
Factors Which Affect Your FICO Credit Score
There are 5 factors in all which determine your FICO credit score:
1. Your payment history.
This counts for a very significant 35%--the most of the FICO score factors. As you would expect, paying your bills on time is gets you a good score, while paying them late on a consistent basis is will mark down your FICO score. If you have had debts referred to a collection agency, that is worse still, while declaring bankruptcy is the worst of all.
2. How much you owe.
Another obvious factor that FICO will take into account in arriving at a credit score. This accounts for another 30% of your total FICO score. It is not just what you owe already that affects your FICO score. Also taken into account is the amount of credit available to you. For example, if you have a credit line of $5000, but have so far only used $1000, that will be taken into account.
Your total amount of credit will be totalled, and compared to your annual income. So, loans such as car loans, mortgages, credit cards, store cards, will all be added together. Those who use most or all of their available credit will get a lower rating for this part of the FICO score calculation.
3. Length of credit history.
Another important
factor that makes up 15% of your FICO credit score is the length of your credit history. The longer your credit history, the better for your FICO score. Additionally, though, a long history with any particular lender will be good for your credit score.
4. Type of credit mix.
The fourth factor taken into consideration is the type of credit mix that you have. For example, do you have only high risk unsecured type credit, or do you also have some solid secured loans such as a home mortgags? Those consumers who have a mix of credit have higher a FICO score. This fourth factor just counts for 10% of the total FICO score.
5. Number of new credit applications.
The last factor in the FICO rating is the amount of new applications that you fill out. If you have recently filled out a lot of credit applications, 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 themselves will normally look at employment, income, length at current residence, and marital status, but these do not affect your FICO score. If you intend to borrow in the future, you do need to pay attention to your FICO score. If your FICO score is low, this could lead to higher interest rates, extra mortgage insurance when buying a home, and in some cases denial of the loan.
If you plan to take out a major loan, such as a home mortgage, it could be a wise move to get a copy of your credit report 6 months before you plan to apply. That will give you time to look over your history, to ensure there are no discrepancies. If you find inaccuracies, contact the Credit Reporting Agency in writing. They will have 30 days to investigate it, and then correct it if they find your claims are true. You may also want to ask for a revised credit report; they are required by law to supply you with one if an inaccuracy is found and corrected.
About the Author
Roy Thomsitt is the owner and part author of http://www.eliminate-credit-card-debt-now.com