As I mentioned above the FICO score is a numerical
score that is based on your financial history as collected
in your credit report. Creditors can use this number
to evaluate whether or not you are able to pay a loan
back on time. The higher the score the more likely
you are to pay off a loan on time and the less of
a credit risk you pose.
The FICO or credit score ranges are broken down as
follows:
720-850 - This represent the best score range
700-719 - Able to obtain favorable financing
terms
675-699- This is still a decent score range
620-674 - May have trouble obtaining favorable
credit terms
560-619 - May have trouble obtaining credit
500-559 - Time to improve your score
Your credit score is broken down into 5 distinct
categories each with their own importance based on
a percentile. The 5 categories and the percentage
they represent I relation to your credit score are
as follows:
Payment History - 35%
Amounts Owed - 30%
Length of Credit History - 15%
New Credit - 10%
Types of Credit Used - 10%
Your payment history contains information on credit
cards, retail accounts, installment loans, finance
company accounts and any mortgages you may have had.
It also details any past due accounts and the amount
owed on hem. You will also find bankruptcy information
as well as other adverse information in regards to
your credit history. This is why it warrants a 35%
piece of the pie.
Your amount owed is generally speaking the amount
owed on any accounts you currently have and number
of accounts with balances. Note that it has a large
impact (30%) on your credit score. The length of your
credit history details when accounts were opened and
the last activity on those accounts. New credit shows
the number of recently opened accounts by the type
of account and number of account inquiries. Finally
the type of credit used is a snapshot of what types
of financing you have held.
Other information that is included in your credit
report but has no bearing on your FICO score includes
your race, age, where you live and your sex and employment
information. Although the FICO score doesn’t
use these factors the employment information may be
used by other companies and creditors to help in their
decision making process.
There are three major credit-reporting agencies -
Equifax, Experian and TransUnion that have your credit
information on hand. Each of these credit bureaus
maintains their information separately, which can
cause the financial data to be slightly different
among the three of them. Most experts agree that in
order to get the best snapshot of your financial history
and credit worthiness it is a good idea to request
a report from each of the reporting agencies. It is
also highly recommended that you actually review your
credit report once a year in order to identify and
correct any errors before they cause any future potential
problems when you apply for credit. Recent changes
in the laws no allow for consumers to request 1 free
credit report each year in order to look for any such
errors.
Here is the contact information for each of the three
reporting credit bureaus:
Equifax: (800) 685-1111, www.equifax.com
Experian: (888) 397-3742, www.experian.com
TransUnion: (800) 888-4213, www.transunion.com
As you can see your FICO Score is a very important
number that represents your financial trustworthiness
in the eyes of creditors. Failure to properly monitor
it could cause you future headaches when it comes
time to apply for any form of credit.
Timothy Gorman is a successful
Webmaster and publisher of Debt-Relief-Solutions.com.
He provides more debt relief, consolidation and credit
repair information that you can research in your
pajamas on his website.
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