FICO score
The acronym for the Fair Isaac Corporation is FICO. It refers to the best-known credit score model that is used to calculate the credit credibility by applying statistical methods. This is the credit score model that is used in the USA. The three major credit reporting agencies in the US are Equifax, Experian and TransUnion. These agencies use a mathematical formula to evaluate the credit report.
The payment history, amount owed , length of credit history and types of credit in use are then evaluated to calculate the FICO score. The FICO score determines the credit credibility of the resident or the applicant . The FICO scores range from 300 to 900. If the score of the applicant(resident ) is high then it is more likely that the applicant had got a good credit history. However, if the score is low it is likely that the credit history is poor.
How Is FICO Score Calculated?
It is always advisable to ensure a good FICO credit score. The reason is that FICO score determines one\'s credit credibility like approved credit for mortgages, car loans, installment loans, tenancy and credit cards. At times it will also determine the interest rates that one can get on the loans and insurance. It can also help the employer decide whether to give a person employment or not. To maximize the score , it is important to understand , how it is calculated and also what is the weightage given to each factor.
1. Types of credit one possess are given the weightage of 10%. It takes into consideration the number of credit accounts, credit cards, installment loans, mortgages and the credit history length.
2. Total amount owed to all the credit accounts. For instance , the mix of amounts owed, total credit available on credit cards , installment loans and so on. The weightage given to this factor is 30%.
3. Length of credit history- longer the credit history higher the score, provided there is no negative information on the file. The weightage for this factor is 15%.
4. Payment history takes 35%of the weightage. This factor takes into account the different payments like mortgages, credit cards, information from public records like bankruptcies and the details of any late or missed payments.
5. New credit takes into consideration number of new credit accounts that has been opened recently. How many requests have been made for credit recently and also considers the recent credit history. This factor carries 10%.
How to improve the FICO Score
Once it is known what factors determine the FICO credit score, one can develop a simple plan to improve the score. Certain things that can be done are to order a copy of credit report and review it carefully. This has to be done once in three months. Pay bills in time and never open new accounts if the credit history is short. Never open a credit account that one does not intend to use. Paying the credit card or installment loan in time can improve the score. Moving the balances to other credit cards and closing the old accounts can hurt the score. Always keep in mind that the negative items can affect the credit score much more quickly than the positive items.
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