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 important in proving your ability to attain credit.
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.
What though determines the final FICO score? There are a number of factors taken into account and these are as follows:
* Payment history of the consumer. This totals just over a third of the whole FICO score so is very important. If a consumer has been late with some payments or not made some payments then this will adversely affect the score. The converse is also true here.
* 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 credit history, type of credit and recent credit applications are all taken into account to make up the final 35% of the FICO score. Those who have used credit for a long period of time will be at an advantage here. Type of credit is assessed in that, if the consumer is to have a variety of different credit – house loan, car loan and a credit card, for example, then this would appear better than credit cards alone. Recent credit applications relates to if the consumer has made a number of recent requests for credit. This may appear that they are somewhat desperate for money and is not necessarly looked fondly upon with regards the FICO scoring.
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.
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