Understanding The Different Types Of FICO(r) Credit Scores
Posted in Finance on 03/19/2011 07:19 pm by
Jay Fran asked:
Before credit scores were developed, lenders use to physically look over each applicants credit report and credit history to determine whether or not to extend credit. This process was highly time consuming and sometimes resulted in large human errors.
As a result, Fair Isaac created the credit scoring formula to help lenders make better judgments more quickly. The credit scoring formula looks at many variables such as total debt to income ratio, types of debt, number of late payments and other variables.
One thing many people fail to realize is that depending on the type of loan you are applying for, you may find your FICO credit score differs quite drastically. The reason for this is that lenders use various versions of the Fair Isaac FICO scores. The goal of this article is to provide an understanding of the different types of credit scores you may see when applying for credit.
Classic FICO
Before credit scores were developed, lenders use to physically look over each applicants credit report and credit history to determine whether or not to extend credit. This process was highly time consuming and sometimes resulted in large human errors.
As a result, Fair Isaac created the credit scoring formula to help lenders make better judgments more quickly. The credit scoring formula looks at many variables such as total debt to income ratio, types of debt, number of late payments and other variables.
One thing many people fail to realize is that depending on the type of loan you are applying for, you may find your FICO credit score differs quite drastically. The reason for this is that lenders use various versions of the Fair Isaac FICO scores. The goal of this article is to provide an understanding of the different types of credit scores you may see when applying for credit.
Classic FICO
Why Do I Have 3 Different FICO Credit Scores At The 3 Credit Bureaus?
Posted in Finance on 03/16/2011 04:15 pm by
RR Rishal asked:
Generally speaking, credit scores are regarded as the overall FICO score which is required as an eligibility criterion for something. However, credit consumers do not grasp the concept of how FICO score derivation.
Plus, there are three uniquely different companies(Equifax, Experian and Transunion) that maintain your credit reports. Therefore, these organizations may or may not have a light difference in your FICO score. Sometimes, the difference is minor, and sometimes it is absolutely beyond a common man’s comprehension level.
Experian always uses the “Experian or Honest Isaac Model” to calculate scoresfor credit rating. Meanwhile, Equifax’s credit scoring model is known as “The Beacon”, and Transunion calls its credit score model, “Empirica”. The names suggest that every organization has its own way of maintaining a consumer’s FICO score.
Other factors that affect or cause a difference in credit reports are;
Multiple identities; If a credit consumer signs up for loans and credits under different identities, his/her report will vary. The three credit score institutes will have different versions of scores because of the unlawful activities of the said consumer. Once caught, the consumer is exposed to a strenuous legal activity that involves lawsuits, heavy fines, imprisonment and forced bankruptcy. Time factor; The free or paid FICO credit score reports are a result of the information that is submitted by lenders, inquirers, utility corporations, collection agencies and courts. Hence, it takes 14 to 30 days for the most recent credit card or any other loan based activity to show up in FICO offices. Seeing to this fact, don’t get carried away with the shopping hype. Ultimately, when the due payments will show up, you’ll be sweating like a prom queen in boys’ locker room. Misrepresentation on Behalf of the Financial Institute; This is where you’re encouraged to go for 3 free credit scores through a reliable online source. It is to ensure that your credit activities are going in accordance to your consent and knowledge. Sometimes, despite of having all the high-tech gadgetries, credit companies make accidents. These “accidents” show up as an extremely low or highscore. Once you’ve notified the FICO officials, they’ll fix the error immediately.
Your lender may hinder the loan approval process without any major reasons. Sometimes, they intentionally want to pend the approval process to ward off defaulters. Such types of companies don’t come up with a straight “NO” because of the bad rep factor. It would be a good idea to get your free MyFICO credit score today to check the difference between each report.
Jill
Generally speaking, credit scores are regarded as the overall FICO score which is required as an eligibility criterion for something. However, credit consumers do not grasp the concept of how FICO score derivation.
Plus, there are three uniquely different companies(Equifax, Experian and Transunion) that maintain your credit reports. Therefore, these organizations may or may not have a light difference in your FICO score. Sometimes, the difference is minor, and sometimes it is absolutely beyond a common man’s comprehension level.
Experian always uses the “Experian or Honest Isaac Model” to calculate scoresfor credit rating. Meanwhile, Equifax’s credit scoring model is known as “The Beacon”, and Transunion calls its credit score model, “Empirica”. The names suggest that every organization has its own way of maintaining a consumer’s FICO score.
Other factors that affect or cause a difference in credit reports are;
Multiple identities; If a credit consumer signs up for loans and credits under different identities, his/her report will vary. The three credit score institutes will have different versions of scores because of the unlawful activities of the said consumer. Once caught, the consumer is exposed to a strenuous legal activity that involves lawsuits, heavy fines, imprisonment and forced bankruptcy. Time factor; The free or paid FICO credit score reports are a result of the information that is submitted by lenders, inquirers, utility corporations, collection agencies and courts. Hence, it takes 14 to 30 days for the most recent credit card or any other loan based activity to show up in FICO offices. Seeing to this fact, don’t get carried away with the shopping hype. Ultimately, when the due payments will show up, you’ll be sweating like a prom queen in boys’ locker room. Misrepresentation on Behalf of the Financial Institute; This is where you’re encouraged to go for 3 free credit scores through a reliable online source. It is to ensure that your credit activities are going in accordance to your consent and knowledge. Sometimes, despite of having all the high-tech gadgetries, credit companies make accidents. These “accidents” show up as an extremely low or highscore. Once you’ve notified the FICO officials, they’ll fix the error immediately.
Your lender may hinder the loan approval process without any major reasons. Sometimes, they intentionally want to pend the approval process to ward off defaulters. Such types of companies don’t come up with a straight “NO” because of the bad rep factor. It would be a good idea to get your free MyFICO credit score today to check the difference between each report.
Jill
Fico Scoring Basics
Posted in Finance on 03/15/2011 07:19 pm by
Gary Gresham asked:
FICO scoring originated from the Fair Isaac Company. The Fair Isaac Company invented the current credit scoring system that turns all of your credit information into a personal credit score. Today lenders still use this credit scoring system to determine credit risk.
The term FICO scoring means, a credit score based on the Fair, Isaac Company or FICO model. It’s important to know your current credit or FICO score and it’s also important to have an understanding of how FICO score is determined.
FICO scoring is used by lenders to figure out what your interest rate will be on loans you apply for. If you’re buying a house the types of mortgages available to you are based on your personal credit score.
That score is based on the FICO model and the interest you pay, as well as your monthly payment, is based on what your personal credit score number is.
The same is true when you get a car loan, as well as the premium on your car insurance or homeowners insurance. Your personal credit score can even affect your chances of getting new employment.
FICO scoring is calculated from a multitude of different credit data and it is grouped into five different categories.
So that you will understand the basics of how FICO score is determined, the percentages below reflect how important each of the categories are in determining your personal credit score.
Payment history (35%)
Your payment history is the largest factor in determining FICO scoring. This includes the number of unpaid bills you have, any bills sent to collection, bankruptcies etc. The more recent the problem, the lower your score.
Outstanding Debt (30%)
How much of the total credit line is being used on credit cards and other revolving charges? High balances or more precisely, balances that are close to your credit limit can negatively affect your credit score. Most lenders think 40%-60% of maximum is ideal.
Length of your credit history (15%)
How long have your accounts been open? High loan amounts that you have paid as agreed and have had open a long time work best. Closing old accounts can have a negative affect because it makes your credit history appear shorter.
Recent inquiries (10%)
Every time you apply for any kind of credit you create an inquiry on your credit report. A lot of inquiries negatively affect your credit score. However, ordering a copy and checking your own credit report or personal credit score counts as a soft inquiry and does not go against your score.
Types of credit in use (10%).
How much is still owed on current mortgage loans, credit cards and finance companies compared with the original loan amounts? Also it’s important not to open a number of new credit card accounts just to increase your available credit. It will have the opposite affect and lower your score.
FICO scoring is based on all the categories of information, not just one or two. Lenders on the other hand will look at a lot of things when they make a credit decision. Your income, how long you have worked at your present job and the kind of credit you are requesting will always be a factor.
There are many things that will affect your financial future and FICO scoring plays a big role in how successful your future will be.
Copyright
FICO scoring originated from the Fair Isaac Company. The Fair Isaac Company invented the current credit scoring system that turns all of your credit information into a personal credit score. Today lenders still use this credit scoring system to determine credit risk.
The term FICO scoring means, a credit score based on the Fair, Isaac Company or FICO model. It’s important to know your current credit or FICO score and it’s also important to have an understanding of how FICO score is determined.
FICO scoring is used by lenders to figure out what your interest rate will be on loans you apply for. If you’re buying a house the types of mortgages available to you are based on your personal credit score.
That score is based on the FICO model and the interest you pay, as well as your monthly payment, is based on what your personal credit score number is.
The same is true when you get a car loan, as well as the premium on your car insurance or homeowners insurance. Your personal credit score can even affect your chances of getting new employment.
FICO scoring is calculated from a multitude of different credit data and it is grouped into five different categories.
So that you will understand the basics of how FICO score is determined, the percentages below reflect how important each of the categories are in determining your personal credit score.
Payment history (35%)
Your payment history is the largest factor in determining FICO scoring. This includes the number of unpaid bills you have, any bills sent to collection, bankruptcies etc. The more recent the problem, the lower your score.
Outstanding Debt (30%)
How much of the total credit line is being used on credit cards and other revolving charges? High balances or more precisely, balances that are close to your credit limit can negatively affect your credit score. Most lenders think 40%-60% of maximum is ideal.
Length of your credit history (15%)
How long have your accounts been open? High loan amounts that you have paid as agreed and have had open a long time work best. Closing old accounts can have a negative affect because it makes your credit history appear shorter.
Recent inquiries (10%)
Every time you apply for any kind of credit you create an inquiry on your credit report. A lot of inquiries negatively affect your credit score. However, ordering a copy and checking your own credit report or personal credit score counts as a soft inquiry and does not go against your score.
Types of credit in use (10%).
How much is still owed on current mortgage loans, credit cards and finance companies compared with the original loan amounts? Also it’s important not to open a number of new credit card accounts just to increase your available credit. It will have the opposite affect and lower your score.
FICO scoring is based on all the categories of information, not just one or two. Lenders on the other hand will look at a lot of things when they make a credit decision. Your income, how long you have worked at your present job and the kind of credit you are requesting will always be a factor.
There are many things that will affect your financial future and FICO scoring plays a big role in how successful your future will be.
Copyright
Understanding Credit
Posted in People on 03/12/2011 07:46 pm byjdpersinger asked:
Mortgage planner, Shanne Sleder takes you through the basics of how your credit score is built and how to improve it.
Clara
What Is The FICO Credit Score Scale?
Posted in Finance on 03/11/2011 10:42 pm by
Rachel Rishul asked:
There comes a time when you figure out the credit report is similar to searching a needle in a stack of hay. Some people have encountered various nonsense credit reports in their lives in the past. Therefore, it was a little worry for them to understand some information.
For the past years, a loan application was a bit easy and smooth. The latest financial downfall naturally is substantially altering things. In many instances, people are going back to the basic of borrowing and lending and the FICO credit score is one huge factor.
It is understood that people desire an excellent credit score as much as possible. The better the score, the better the lender will see the application for the loan. Did you know the reason why? Well, your credit score will reveal the financial status history and that includes if you had committed blunders before.
Many lenders determine the credit account by means of a procedure called FICO analysis. The FICO credit score scale is derived from Fair Isaacs Company who formulated an approach to simplify all the information contained in your credit report down to one single 3 digit number.
The lowest FICO credit score scale is not zero, which is a typical mistake. It rather begins at 300 points and increase up to 850 points as the score improves. There are some classifications as the increase happens. A borrower who has a FICO score about 619 points or below is said to have a bad credit score. Those who keep about 620 to 749 points are known as above or below average because they are moving within the score range. 750 points and above is known a superb credit score and most banks are in a position to approve the loan if there are no certain problems that may come like inadequate income.
Most banks are risk detrimental in the latest financial dealings these days. This signifies a borrower with a low FICO score will not be able to find a loan easily or at an attractive interest rate. Therefore, what must this person do? It is important to understand the concerns related to your credit account and be able to cope with these issues. Take into account that even minor changes may substantially increase the credit score. Of course, this will not be resolve in doing this because it is important to find another way.
One way to cope with a bad credit score is provide reasonable explanation to the bank to give some considerations. One precise solution is offer huge down payment more than what is required. This will give a good impression to the bank that you are sincere to apply for the loan, as you will not be walking away from your personal money in case you offer huge down payment. Approximately 25% down payment or even more you will be able to convince the bank to grant you the loan.
In the end, the FICO score is essential whenever you have plans to borrow money. As what they often say, the decision of the lender is always what makes the loan application possible or not. Your first step is to get your free FICO credit score and see how lenders will view you.
Maureen
There comes a time when you figure out the credit report is similar to searching a needle in a stack of hay. Some people have encountered various nonsense credit reports in their lives in the past. Therefore, it was a little worry for them to understand some information.
For the past years, a loan application was a bit easy and smooth. The latest financial downfall naturally is substantially altering things. In many instances, people are going back to the basic of borrowing and lending and the FICO credit score is one huge factor.
It is understood that people desire an excellent credit score as much as possible. The better the score, the better the lender will see the application for the loan. Did you know the reason why? Well, your credit score will reveal the financial status history and that includes if you had committed blunders before.
Many lenders determine the credit account by means of a procedure called FICO analysis. The FICO credit score scale is derived from Fair Isaacs Company who formulated an approach to simplify all the information contained in your credit report down to one single 3 digit number.
The lowest FICO credit score scale is not zero, which is a typical mistake. It rather begins at 300 points and increase up to 850 points as the score improves. There are some classifications as the increase happens. A borrower who has a FICO score about 619 points or below is said to have a bad credit score. Those who keep about 620 to 749 points are known as above or below average because they are moving within the score range. 750 points and above is known a superb credit score and most banks are in a position to approve the loan if there are no certain problems that may come like inadequate income.
Most banks are risk detrimental in the latest financial dealings these days. This signifies a borrower with a low FICO score will not be able to find a loan easily or at an attractive interest rate. Therefore, what must this person do? It is important to understand the concerns related to your credit account and be able to cope with these issues. Take into account that even minor changes may substantially increase the credit score. Of course, this will not be resolve in doing this because it is important to find another way.
One way to cope with a bad credit score is provide reasonable explanation to the bank to give some considerations. One precise solution is offer huge down payment more than what is required. This will give a good impression to the bank that you are sincere to apply for the loan, as you will not be walking away from your personal money in case you offer huge down payment. Approximately 25% down payment or even more you will be able to convince the bank to grant you the loan.
In the end, the FICO score is essential whenever you have plans to borrow money. As what they often say, the decision of the lender is always what makes the loan application possible or not. Your first step is to get your free FICO credit score and see how lenders will view you.
Maureen
The Effect of Maxed Out Credit Cards On Your FICO Credit Score
Posted in Finance on 03/09/2011 01:58 am by
Rachel Rishul asked:
One of the factors that can directly affect your credit score is when your credit card is already maxed out. This is one of the most important that you need to consider if you really value your financial life. Everybody knows that they need to pay their bills on or before the due date, avoid bankruptcy and the like. But did you know that the balances of your credit card can be a factor whether you will be approved for a mortgage and the interest rate that you will get?
If you happen to have high balances on your cards, then you will really have a hard time getting a mortgage or getting the best interest rates. One of the things that FICO scores take into consideration is what they call credit utilization ratio. It simply means that they take the amount you owed divided by the amount that you are allowed to charge. It will provide a percentage. The percentage that you need is below 30% on every card that you have.
If you have a credit card that you always use and you have another one used for back up, you can try to transfer some of the balance to your back up card so you can have a better credit utilization ratio on all of your credit cards.
It can have a huge impact on your FICO score. It plays a very important role in boosting your credit score since 30% percent of your FICO score can be determined by the ratio of credit that you already used to the remaining credit. If you will try to calculate it, even if you have an excellent repayment history, no collections and you have no bankruptcies, you can still have a low credit score if you max out your credit cards monthly.
If you have a month or two that you exceed on your credit limit, your FICO score will really decline. Most of the people who get their credit report sometimes found out that the limit of their cards are not correct. Most of the time, the bank card company raises the credit limit without reporting it to the credit bureaus. It only means that you are actually spending more than your credit limit every month. When this happens, take time to clear it up and write to the customer service office of the credit card company and ask them to correct the mistake.
Aaron
One of the factors that can directly affect your credit score is when your credit card is already maxed out. This is one of the most important that you need to consider if you really value your financial life. Everybody knows that they need to pay their bills on or before the due date, avoid bankruptcy and the like. But did you know that the balances of your credit card can be a factor whether you will be approved for a mortgage and the interest rate that you will get?
If you happen to have high balances on your cards, then you will really have a hard time getting a mortgage or getting the best interest rates. One of the things that FICO scores take into consideration is what they call credit utilization ratio. It simply means that they take the amount you owed divided by the amount that you are allowed to charge. It will provide a percentage. The percentage that you need is below 30% on every card that you have.
If you have a credit card that you always use and you have another one used for back up, you can try to transfer some of the balance to your back up card so you can have a better credit utilization ratio on all of your credit cards.
It can have a huge impact on your FICO score. It plays a very important role in boosting your credit score since 30% percent of your FICO score can be determined by the ratio of credit that you already used to the remaining credit. If you will try to calculate it, even if you have an excellent repayment history, no collections and you have no bankruptcies, you can still have a low credit score if you max out your credit cards monthly.
If you have a month or two that you exceed on your credit limit, your FICO score will really decline. Most of the people who get their credit report sometimes found out that the limit of their cards are not correct. Most of the time, the bank card company raises the credit limit without reporting it to the credit bureaus. It only means that you are actually spending more than your credit limit every month. When this happens, take time to clear it up and write to the customer service office of the credit card company and ask them to correct the mistake.
Aaron
Understanding Your Fair Isaac Credit Score – Also Known As Your FICO Score
Posted in Finance on 03/08/2011 12:37 am by
Rachel Rishul asked:
A lot of people are wondering if Fair Isaac is a person or some kind of a name that has something to do with the financial lifestyle of a person. Actually, Fair Isaac is a name of the man who is responsible for the method of calculating scores that are equal to the financial lifestyle and activities of consumers. This kind of method is patented way back in the 1950s and still used today to determine the people who are worthy for a credit loan.
Fair Isaac credit score or FICO is a numeric measure of how financially trustworthy a person is. This score determines more than what you think. Maybe, you already heard that FICO score is the one that will determine if you can obtain a home loan from a bank. However, did you also know that Fair Isaac credit score also plays a very important part in determining your interest rates on your credit cards? Aside from this, it also plays a vital role in the price of your auto insurance.
If you already know these facts, then do you know that your FICO score can also determine your employment? Basically, it is one of the most important things that you must know about FICO score. If you are currently applying for a new job, the company that you are applying for will most likely check your financial lifestyle and one way of doing this is by checking your FICO score. Most of the time, your FICO score is checked especially if you will be applying for a job where finances of the company are involved. These companies will really want to hire a person that knows how to handle money well so if you have a low credit score, then you have a very low chance of obtaining the job.
The Fair Isaac credit score ranges from 300 to 850. Basically, this score measures your statistical probability of being late in paying your bills. Most of the people have a score between 600 and 700 and only 11 percent of the total population has a score of 800 above.
These scores can also affect the loan rates that you can obtain. If you have a credit score of 560 or below, then you must expect a higher interest rate which is between 4.3 percent and 5 percent. If you have a higher FICO score then you can have a lesser interest rate.
Glenda
A lot of people are wondering if Fair Isaac is a person or some kind of a name that has something to do with the financial lifestyle of a person. Actually, Fair Isaac is a name of the man who is responsible for the method of calculating scores that are equal to the financial lifestyle and activities of consumers. This kind of method is patented way back in the 1950s and still used today to determine the people who are worthy for a credit loan.
Fair Isaac credit score or FICO is a numeric measure of how financially trustworthy a person is. This score determines more than what you think. Maybe, you already heard that FICO score is the one that will determine if you can obtain a home loan from a bank. However, did you also know that Fair Isaac credit score also plays a very important part in determining your interest rates on your credit cards? Aside from this, it also plays a vital role in the price of your auto insurance.
If you already know these facts, then do you know that your FICO score can also determine your employment? Basically, it is one of the most important things that you must know about FICO score. If you are currently applying for a new job, the company that you are applying for will most likely check your financial lifestyle and one way of doing this is by checking your FICO score. Most of the time, your FICO score is checked especially if you will be applying for a job where finances of the company are involved. These companies will really want to hire a person that knows how to handle money well so if you have a low credit score, then you have a very low chance of obtaining the job.
The Fair Isaac credit score ranges from 300 to 850. Basically, this score measures your statistical probability of being late in paying your bills. Most of the people have a score between 600 and 700 and only 11 percent of the total population has a score of 800 above.
These scores can also affect the loan rates that you can obtain. If you have a credit score of 560 or below, then you must expect a higher interest rate which is between 4.3 percent and 5 percent. If you have a higher FICO score then you can have a lesser interest rate.
Glenda
The Importance of Your FICO Score
Posted in Finance on 03/06/2011 06:20 pm by
Bernard B. asked:
A couple of weeks ago, I heard a radio show host refer to your fico score as your “Adult Report Card”. It’s true. It’s a trust meter on how well you handle borrowed money.
The fico score has been depicted as some sort of enigma. We know it’s a number that determines your interest rates but I think that’s as far as some people take it.
What you should realize is that your credit score can dramatically affect your wealth. It factors your interest rate, rate of return, and financing options.
So let’s explore:
Why is it important?
What are some misconceptions?
What can lower it?
And most of all, how can you raise it and maintain it?
Why is it important?
Your fico (Fair Isaac Company) score is a ranking on your ability to pay back borrowed money. The higher the number, the better. Since this number determines your interest rates, it is important is because a lower score can erode a lot of your wealth.
Some think that having no credit at all is better. It isn’t.
No credit is almost as bad as bad credit.
If you think about it, who would you trust more with your new car? Would you rather have someone with a bad driving record or someone that has never driven at all? They’re almost equally as bad.
What are some misconceptions?
You can raise your score by lowering your credit availability.
Lowering your credit availability can have the opposite affect of what this strategy intends.
When your credit report is pulled, it is a snapshot of a point in time. What we have have learned is that you do not want your balance on a credit line to exceed 30% of its availability.
For example, if your credit availability is $10,000, try to keep your balance below $3,000.
-What if I pay my bills on time?-
It doesn’t matter since this report is a snapshot in time. Your report does not say you pay your bills on time. It will say you are a high risk if your balance happens to be close to your credit availability.
Also, having high available credit will not lower your grade. As you can see, it could actually help your score.
Having a balance on your card improves your credit.
I initially heard this from a friend when I was in college. But this advice holds no merit. My wife and I pay off our balances every month and our fico scores are high.
This should be good news! Not carrying a balance means that you don’t have to pay interest when you don’t want to. Who do you think started this rumor that carrying a balance is good? I have some guesses.
Requesting a credit report will hurt your score.
This depends. When you make a hard inquiry, your score can be affected, but only by a few points. A hard inquiry is made when you are actively seeking credit (i.e. a new credit card).
But, if you make multiple hard inquiries for a car loan within 45 days, those will only count as one inquiry.
A soft inquiry can be made to get an approximate figure of what your score is. Our Prepaid Legal Membership performs soft inquiries every month to investigate any unusual occurrences on our credit report. These don’t hurt your score because you aren’t applying for credit.
What can lower it?
Not paying your bills on time.
Some of you may be thinking…duh. But, you’d be surprised. If it was so apparent, everyone would have great credit right? We know that’s not the case today.
So here’s a habit you can work on: Pay your bills on time! If you can’t pay a bill on time, then maybe it shouldn’t be a bill.
Closing credit card accounts.
Your credit cards have history. I’ve heard it referred to as roots. So, the longer you have a credit card, the deeper the roots. If you close a credit card account that you don’t use, you uproot that history.
If you have good credit history with a particular card, then you’d really want to keep it. Also, closing a credit card decreases your credit availability that it carried.
Transferring balances.
We were taught that transferring balances between cards has an adverse affect on your fico score. To the credit card companies, it just looks like you’re moving these balances.
They’re probably right.
How can you raise it and maintain it?
Run your credit report.
This should be done first. You need to establish a baseline. You need to know where you are now in order to get to where you want to be.
I heard that 80% of credit reports have an error on them. This erroneous data can be bringing down your score, causing you to pay more interest. What you don’t know can hurt you.
There are some online resources where you can get a free credit report. Take advantage of them.
Have 2-3 active credit cards.
I’m talking about major credit cards like American Express, MasterCard, Visa, and Discover. If you have retail cards like Nordstrom and Best Buy, I would suggest closing them. Oh yeah, pay the balances first.
If you don’t have enough cards, open some up. It will lower your fico score initially because you are applying for credit. But, they will help in the long run because you are working to deepen those roots.
Increase your credit availability.
Call you credit card companies to increase the credit availability on your cards. You don’t want your balance on any card to exceed 30% of its availability. Don’t max out your credit cards!
And remember, your credit cards are a backup resource for emergencies. The greater the availability, the greater the resource.
10 months ago, my wife’s credit score was 762 and mine was 750. And the answer is yes, my wife does hold that over my head.
But the magic number for your fico score is 720. I’m not sure why, but that’s the number that lenders view as capable of getting the best rates. There’s no reason to work for a higher number.
This is your adult report card. Make 720 your goal. Run your report.
Check if you’re passing…or failing.
Extra Credit
Here’s some extra credit for those of you who want to look better on your report card.
1. Automate your bills.
You don’t have to carry three credit cards in your wallet and rotate charges to keep them active. Set up some bills to be paid with the card (i.e. phone bill, cable bill, etc.) They can be as small as you want.
Then at the end of the month, be sure to pay the balances on those cards. Use online banking to automate this process.
2. Add your child as an authorized user.
There’s not a better time to teach your child how to use a credit card than when they’re young. Have them added as an authorized user so they can start building their credit history along with you.
Teach them the importance of being responsible with their fico score, paying their bills on time, and other productive ways to use a credit card.
(And tell them that a t-shirt is not worth a credit card in college.)
3. Deepen individual roots.
If your spouse needs to rebuild his/her credit, put the car loan under his/her name. Establish your partner as a standalone borrower. Having good credit between the both of you can increase your productivity by having the ability to use either fico score when investment opportunities arise.
Eddie
A couple of weeks ago, I heard a radio show host refer to your fico score as your “Adult Report Card”. It’s true. It’s a trust meter on how well you handle borrowed money.
The fico score has been depicted as some sort of enigma. We know it’s a number that determines your interest rates but I think that’s as far as some people take it.
What you should realize is that your credit score can dramatically affect your wealth. It factors your interest rate, rate of return, and financing options.
So let’s explore:
Why is it important?
What are some misconceptions?
What can lower it?
And most of all, how can you raise it and maintain it?
Why is it important?
Your fico (Fair Isaac Company) score is a ranking on your ability to pay back borrowed money. The higher the number, the better. Since this number determines your interest rates, it is important is because a lower score can erode a lot of your wealth.
Some think that having no credit at all is better. It isn’t.
No credit is almost as bad as bad credit.
If you think about it, who would you trust more with your new car? Would you rather have someone with a bad driving record or someone that has never driven at all? They’re almost equally as bad.
What are some misconceptions?
You can raise your score by lowering your credit availability.
Lowering your credit availability can have the opposite affect of what this strategy intends.
When your credit report is pulled, it is a snapshot of a point in time. What we have have learned is that you do not want your balance on a credit line to exceed 30% of its availability.
For example, if your credit availability is $10,000, try to keep your balance below $3,000.
-What if I pay my bills on time?-
It doesn’t matter since this report is a snapshot in time. Your report does not say you pay your bills on time. It will say you are a high risk if your balance happens to be close to your credit availability.
Also, having high available credit will not lower your grade. As you can see, it could actually help your score.
Having a balance on your card improves your credit.
I initially heard this from a friend when I was in college. But this advice holds no merit. My wife and I pay off our balances every month and our fico scores are high.
This should be good news! Not carrying a balance means that you don’t have to pay interest when you don’t want to. Who do you think started this rumor that carrying a balance is good? I have some guesses.
Requesting a credit report will hurt your score.
This depends. When you make a hard inquiry, your score can be affected, but only by a few points. A hard inquiry is made when you are actively seeking credit (i.e. a new credit card).
But, if you make multiple hard inquiries for a car loan within 45 days, those will only count as one inquiry.
A soft inquiry can be made to get an approximate figure of what your score is. Our Prepaid Legal Membership performs soft inquiries every month to investigate any unusual occurrences on our credit report. These don’t hurt your score because you aren’t applying for credit.
What can lower it?
Not paying your bills on time.
Some of you may be thinking…duh. But, you’d be surprised. If it was so apparent, everyone would have great credit right? We know that’s not the case today.
So here’s a habit you can work on: Pay your bills on time! If you can’t pay a bill on time, then maybe it shouldn’t be a bill.
Closing credit card accounts.
Your credit cards have history. I’ve heard it referred to as roots. So, the longer you have a credit card, the deeper the roots. If you close a credit card account that you don’t use, you uproot that history.
If you have good credit history with a particular card, then you’d really want to keep it. Also, closing a credit card decreases your credit availability that it carried.
Transferring balances.
We were taught that transferring balances between cards has an adverse affect on your fico score. To the credit card companies, it just looks like you’re moving these balances.
They’re probably right.
How can you raise it and maintain it?
Run your credit report.
This should be done first. You need to establish a baseline. You need to know where you are now in order to get to where you want to be.
I heard that 80% of credit reports have an error on them. This erroneous data can be bringing down your score, causing you to pay more interest. What you don’t know can hurt you.
There are some online resources where you can get a free credit report. Take advantage of them.
Have 2-3 active credit cards.
I’m talking about major credit cards like American Express, MasterCard, Visa, and Discover. If you have retail cards like Nordstrom and Best Buy, I would suggest closing them. Oh yeah, pay the balances first.
If you don’t have enough cards, open some up. It will lower your fico score initially because you are applying for credit. But, they will help in the long run because you are working to deepen those roots.
Increase your credit availability.
Call you credit card companies to increase the credit availability on your cards. You don’t want your balance on any card to exceed 30% of its availability. Don’t max out your credit cards!
And remember, your credit cards are a backup resource for emergencies. The greater the availability, the greater the resource.
10 months ago, my wife’s credit score was 762 and mine was 750. And the answer is yes, my wife does hold that over my head.
But the magic number for your fico score is 720. I’m not sure why, but that’s the number that lenders view as capable of getting the best rates. There’s no reason to work for a higher number.
This is your adult report card. Make 720 your goal. Run your report.
Check if you’re passing…or failing.
Extra Credit
Here’s some extra credit for those of you who want to look better on your report card.
1. Automate your bills.
You don’t have to carry three credit cards in your wallet and rotate charges to keep them active. Set up some bills to be paid with the card (i.e. phone bill, cable bill, etc.) They can be as small as you want.
Then at the end of the month, be sure to pay the balances on those cards. Use online banking to automate this process.
2. Add your child as an authorized user.
There’s not a better time to teach your child how to use a credit card than when they’re young. Have them added as an authorized user so they can start building their credit history along with you.
Teach them the importance of being responsible with their fico score, paying their bills on time, and other productive ways to use a credit card.
(And tell them that a t-shirt is not worth a credit card in college.)
3. Deepen individual roots.
If your spouse needs to rebuild his/her credit, put the car loan under his/her name. Establish your partner as a standalone borrower. Having good credit between the both of you can increase your productivity by having the ability to use either fico score when investment opportunities arise.
Eddie
Poor Credit Home Mortgage Loans – The Role of the FICO Score
Posted in Real Estate on 03/01/2011 08:43 pm by
Carrie Reeder asked:
If you have bad credit history and are looking to get a home mortgage loan, then chances are you are going to need to know all about how the FICO credit scoring system works.
FICO – Fair ISAAC & Company – is the leading credit reporting agency that lenders turn to when it comes time to credit scoring your home loan mortgage application; so if you do have bad credit history, these guys will know.
The formula used by FICO cannot be disclosed because of a decision made by U.S. Congress. There are some things generally known about FICO which that could help you understand why and how you can get approved:
1. The higher your FICO score, the better chance you have of getting that home mortgage loan. Also, the higher your score, the more room you have to negotiate a lower interest rate.
2. If you have a FICO score lower than 500, there is very little chance you’ll be getting a mortgage home loan.
That said, if you have a score of:
500 – 600 you should be able to get a home mortgage loan, provided you are willing to make a down payment.
600 – 640 You should get a 100% home loan financing. Thats right, with no money down.
640 – 700 You should be able to be approved for a 125% home mortgage loan.
700+ You’re in the drivers seat! You should be able to get an excellent rate with excellent terms.
3. FICO depends on each credit report, so before you apply for a home mortgage loan, if you have bad credit history, get a copy of your credit report and make sure there is nothing on there that shouldn’t be there. If there is, get it changed before you apply for the home mortgage loan.
4. Wait until after you have purchased or refinanced your home before you buy anything additional on credit. More loans or higher balances can have a dramatic effect on your mortgage approval, regardless of whether or not you had over a 600 FICO score before you bought on credit.
5. Remember, the FICO score is only a part of your home mortgage loan application, so if at first you don’t succeed in getting your home loan mortgage, don’t give up. Some lenders may still be willing to lend to you!
People with bad credit often don’t understand how the credit scoring system works. It is beneficial to find out more about it when looking to get a home loan with less than perfect credit to bad credit or when dealing with sub prime mortgage lenders.
To view our list of recommended bad credit mortgage lenders online, visit this page: Recommended Bad
Credit Mortgage Lenders
Shannon
If you have bad credit history and are looking to get a home mortgage loan, then chances are you are going to need to know all about how the FICO credit scoring system works.
FICO – Fair ISAAC & Company – is the leading credit reporting agency that lenders turn to when it comes time to credit scoring your home loan mortgage application; so if you do have bad credit history, these guys will know.
The formula used by FICO cannot be disclosed because of a decision made by U.S. Congress. There are some things generally known about FICO which that could help you understand why and how you can get approved:
1. The higher your FICO score, the better chance you have of getting that home mortgage loan. Also, the higher your score, the more room you have to negotiate a lower interest rate.
2. If you have a FICO score lower than 500, there is very little chance you’ll be getting a mortgage home loan.
That said, if you have a score of:
500 – 600 you should be able to get a home mortgage loan, provided you are willing to make a down payment.
600 – 640 You should get a 100% home loan financing. Thats right, with no money down.
640 – 700 You should be able to be approved for a 125% home mortgage loan.
700+ You’re in the drivers seat! You should be able to get an excellent rate with excellent terms.
3. FICO depends on each credit report, so before you apply for a home mortgage loan, if you have bad credit history, get a copy of your credit report and make sure there is nothing on there that shouldn’t be there. If there is, get it changed before you apply for the home mortgage loan.
4. Wait until after you have purchased or refinanced your home before you buy anything additional on credit. More loans or higher balances can have a dramatic effect on your mortgage approval, regardless of whether or not you had over a 600 FICO score before you bought on credit.
5. Remember, the FICO score is only a part of your home mortgage loan application, so if at first you don’t succeed in getting your home loan mortgage, don’t give up. Some lenders may still be willing to lend to you!
People with bad credit often don’t understand how the credit scoring system works. It is beneficial to find out more about it when looking to get a home loan with less than perfect credit to bad credit or when dealing with sub prime mortgage lenders.
To view our list of recommended bad credit mortgage lenders online, visit this page: Recommended Bad
Credit Mortgage Lenders
Shannon