What Is A Fico Score?
Posted on February 12, 2008 - Filed Under Finance
The FICO score is a number that rates people according to their credit worthiness by the Fair Isaac Corporation, the largest credit scoring company in the world. Fair Isaac Corp. compiles the data that the three nationwide credit reporting companies, Experian, Trans Union, and Equifax list, into a proprietary, numerical formula that ranges from 300 to 850. That number is used by lenders of all types to judge a person’s credit worthiness when deciding to issue new credit to a consumer.
Fair Isaac looks at a number of factors when they determine a FICO score, and the majority of it relates to your payment history and the amount of credit (debt) that you have used. Those two factors make up about 60% of the FICO score, the rest of it is made up of the length of time you have had the credit and the mix of creditors. It breaks down in a percentage like this:
- 35% is based on your payment history, and how many times you were late.
- 30% is based on the amount of total credit you have, and the amount of that credit that you are currently using.
- 15% is based on how long you have had the accounts.
- 10% is based on how much new credit has been added.
- 10% is based on the mix of creditors you have.
Here are some basic things you can do to improve your FICO score:
1. Never pay a bill after the due date. Always pay your revolving credit card bills before the due date, because every late payment will hurt your credit score. It’s important to pay them right away and not wait until the day before they are due to pay them. Give them at least a week to get there in the mail, or pay online 2-3 days before the due day.
2. Don’t carry high balances on your credit cards. If you have charged over 75% of the available balance, you are becoming a risk to them, as people usually tap all the available credit before they default. Keep balances between 25-50% of the available credit.
3. Don’t close those older accounts. When you finally pay off a card, you might be tempted to close them; don’t! It will hurt your credit in two ways; #1, it will close that card that had a long history, which is what shows stability, and #2, it lowers your overall credit available, which will raise your debt-to-income ratio, which lowers your FICO score. Don’t close accounts when you pay them off.
4. Department store & other specialty cards actually hurt your credit. Good debt, like mortgages, car loans, and the big four credit cards look good on your credit report. Department Store cards actually hurt your credit; use your Visa or M/C at department stores.
5. Don’t take every offer they send you. When you constantly add new credit, you are actually hurting your FICO score. Not only will the newness of the accounts lower your score, if you take out too much credit, your debt to income ration will go up, lowering your FICO. Don’t apply for another card, shred those offers instead.
Now that you know what your FICO score is, and how it’s determined, use these basic tips to increase your credit score. If you have bad credit, you need extra strength help.
There are legal ways to eliminate bad credit and you can find out more information on our website.
Christopher Winkler
Author
cwinkler@myrestoredcredit.com
http://MyRestoredCredit.com
Tags: bad credit, Fair Isaac Corp, FICO, improve your credit
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