The Simple Truth Behind How Your Credit Score Is Determined
What is the FICO score? The FICO score is a three digit number which is used in North American that determines whether a consumer is credit-worthy. It was first introduced and named after a company called Fair, Isaac and Company. So obviously the factors that determine this number are highly impo
All lending activities in North America are recorded by the three largest credit bureaus, namely Experian, Equifax and Trans Union. With this information the consumer is thus provided their FICO score which can range anything from 300 to 850. Thereafter, the score is used by many businesses in determining credit-worthiness. This could be done by an insurance company, a credit card company, a landlord if you are interested in renting a property and even some employers now use it too.
The determination of the actual score is carried out as follows:
- The payment history of the consumer. This makes up over a third of the entire score. So, if for example a consumer has made some late payments to pay off credit or perhaps even defaulted on some payments then this will very much go against their record. If on the other hand the records show quite the opposite and all payments have been made in a timely manner, then the FICO score will reflect this.
* Existing debts are also considered, and this make up another one-third of the credit score. The ratio of current debt to existing available credit is considered and this will reflect on the person’s score. Credit cards that have been maxed out are often very bad and it will definitely give a bad reflection of a person’s paying capacity.
* Length of the credit history, types of overall credit, and recent credit applications make up the final one-third of a person’s credit score. Of the three, the length of a person’s credit history is important because it determines the person’s ability to maintain a credit card. People who have had the credit card for very long will definitely be better clients than one who have just been using their credits for a few months. Recent credit applications will also be investigated; and people who have several pending applications will seem as though they are desperate for money and so might be a risk. Finally, the type of credit that people make is observed; and a person with a credit report that consists purely of credit card transactions will be a big risk.
The above points add up to make 100% of what we know as the FICO score. Hopefully you can use this information to improve your own score and thus gain the credit you would like with the terms and conditions to match.
Learn more about credit card help and a debt consolidation program to suit your needs.
Comments
Tell me what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!