5 Tips To Help You Understand FICO Scores
Formal Definition of FICO Scores
The concept of FICO scores was created and promoted by the Fair Isaac Corporation as a reliable way to judge a consumer’s credit history and worthiness to get loans.
What Makes FICO Scores Different?
FICO scores are slightly different from other credit type reports received from Experian and similar services because FICO scores are more widely accepted by mortgage brokers and home lenders. Freddie Mac and Fannie Mae were behind the initial push to use FICO scores according to some experts and they have pretty much been accepted as the industry standard since then.
What Is Actually In My FICO Score?
FICO scores are based on 5 different factors that are used to determine your overall score. The first two factors shown are responsible for more than half your score so they are considered to be a bit more important. Some things that FICO scores do not include are racial background, current job, how much you earn, or marital status.
* Normal Payment History (35%)
* Amounts Owed to Creditors (30%)
* How Long Have You Had Credit (15%)
* New Credit Obtained (10%)
* What Type of Credit Do You Use Most Often (10%)
What Would Be a Good FICO Score?
FICO scores average in range from a low of 300 to a high of 800. The higher your score, the better it is for you in terms of getting a loan. The condition of the economy may cause what lenders consider to be a good score to fluctuate. However, at this point in time, scores around the 720 mark or higher would most often fall into the good category.
How Can I Raise My FICO Score?
The biggest thing to consider when trying to raise your FICO score is that it will not happen overnight. Keeping that in mind, it is possible to raise your score with good decisions and better payment habits.
One good step is to build up a new credit history by making sure to make each of your payments timely. This is a very important part of your overall score so it’s crucial that you pay your bills on time. In addition, try to keep your account balances low as excessive amounts of credit can bring down your score as well. It’s highly important that you speak with your creditors and not avoid them if you get into a financial jam as they may be able to lower your rates or delay your next payment.
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