WHAT IS A FICO SCORE

Your FICO score is a three digit number derived by the credit reporting agencies and is based on your credit history. It is the most impacting factor when determining whether or not you will be approved for any type of credit or loan as well as what kind of interest rates and terms you are going to receive. In addition, your FICO score can even determine whether or not you get that new job, cell phone, or apartment.

Almost everything you do financially is going to influence your FICO score. If you take care of your credit score, you will likely obtain favorable interest rates and terms. If you have a low credit score as a result of bad credit practices, you can expect higher rates and even recurrent loan and credit rejections.

We recommend that you obtain a copy of your credit report regularly to ensure accuracy. If there is inaccurate information, you will need to take the proper steps to correcting credit reports. Some erroneous data is going to be more difficult to remove than other info. Learn more about what the hardest items to fix are.

What does FICO stand for?
Fair Isaac Corporation. This is the company the developed the credit scoring model, called FICO.

Why do businesses use FICO scores?
Your FICO score is a clear indication of how you manage or mismanage your loans and credit cards. Financial institutions use this score to determine what kind of risk you are; foremost determining whether or not to grant approval and then what kind of rates to assign you. 

Your FICO score can also be used to determine whether or not you are a favorable candidate for a job you are applying for or if you will be a positive tenant for a new apartment you are interested in. Nowadays, there are many different scenarios that will rely on your FICO score.

As mentioned, a high FICO score will translate into a positive reputation with businesses and creditors. A low FICO score means that you are a risk, resulting in companies not wanting to do business with you.

How are FICO scores determined?
There are several key variables that determine your FICO score: spending habits, bill payment history, and the amount of debt you have. Your account activity with every company you do business with is going to be reported regularly to the three major credit reporting agencies.

The formula used to derive your FICO score is calculated by the subsequent 5 categories:
 - 35%: History of paying bills on time?
 - 30%: Balance of your credit cards and loans compared to total available limits.   
 - 15%: Your total length of credit history.
 - 10%: Recent applications for credit
 - 10%: Stable mix of credit, i.e. credit cards and loans

FICO scores range from 300-850. A score between 300-500, is considered poor credit. It is important to understand what the effects of having bad credit are. Getting approved for any type of loan or credit is going to be very difficult. Even if you do get approved, the rates you receive are going to be sky-high. If you have no credit, you can learn how to build credit. Or, those with bad credit can re-establish their credit

Examples of how FICO effects interest rates:
On a 30 year fixed-rate home mortgage, the difference between a strong FICO score and a weak one can result in as much as 4 point difference on your interest rate.

On a five-year auto loan it can mean up to a 10 point difference on your interest rate.

On a five-year unsecured loan it can mean up to a 15 point difference on your interest rate.

In conclusion....
Your FICO score is one of the most important aspects of your life. It is important that you take care of your credit. Doing so will get you the credit you desire, at favorable rates. Bad credit will only translate into rejections and high rates. If you have any questions, please contact us.

How to Read Credit Reports
Making Sure Your Credit Report is Accurate
Credit Report FAQ
Free Credit Reports
Things That Hurt Your Credit Score
Credit Report Secrets
How Long Do Negative Marks Stay On My Credit Report?

 

 



 

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