Credit reports and understanding your FICO credit score is essential whether you are trying to buy a home, a new car or applying for a credit card. Lenders will want to determine the risk their taking by lending you the money. Most lenders use your FICO credit score (you have 1 score for each of the 3 major credit agencies) to determine if they are willing to lend you money, how much money and at what terms you will receive.
Your FICO credit score, named after the company that developed it, Fair Isaac & Company is a number between 350 and 850 ( though some reports have it going as high as 900). Lenders believe the higher the number, the better chance you will make your loan payments and make them on time. They use a variety of information to come up with this score. It’s often been compared to a laundry list of all your credit accounts, all payment history, as well as some other personal information that when combined together will be the determining factor for most lenders as to your credit worthiness.
FICO Credit Score – Let’s Brake It Down.
Payment History – 35% of your score is based on your payment history of making payments on time and not missing any. This probably is the most important item lenders will look at when determining your credit worthiness.
Amount Owed – 30% of your score is based on this number. This is derived by taking amount you owe relative to amount of credit available. Your considered a higher risk if your close to maxing out your credit. Lenders believe your more apt to late payments therefore lowering your credit score.
Length Of Credit History – 15% of your FICO credit score will be based on this number. This is just how it sounds. The longer you have an account opened in good standing, the better your credit score. Simply put, your score considers your oldest account and average length of all accounts.
New Credit – 10% of your FICO credit score is determined by this factor. Opening up several new accounts in a short period of time is not a very good idea. This can lead to a lower score. Also, the amount of inquiries can affect your score as well. This does not include any inquires made by you, a potential employer, or if done so by a lender wanting to send you an unsolicited pre-approved credit offer.
Types Of credit In Use – 10% will be determined by the various mix of credit lines currently in use by you. Such as credit cards, retail accounts, finance company loans as well as mortgage loans are considered.
FICO Credit Score – How Do I Measure Up?
Roughly 60 percent of people have credit scores of 700 and above. A score of 720 is the number everyone should be shooting for. If your score is 720, there’s really no need to try and raise it because lenders lump you in the same category as folks with a score of say 800 or 820. With a score of 720 or above, lenders will consider you a safe risk and typically you should receive what you need at a good rate with no problems. If however, your score is below 700, then it is definitely worth your time and effort to pump up that number.
If your looking to increase you FICO credit score, just check out our how to fix credit products and services and see what resources our site has to offer.