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Credit Report Score > Credit Report Score: Blending The Ingredients Of FICO Score
Credit Report Score: Blending The Ingredients Of FICO Score |
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A credit report score are an important
criterion in today's lending environment and as such it is essential that
everyone should clearly understand what a credit report score is really all
about. These scores are produced from software developed by Fair, Isaac & Co (that's why they are called FICO scores) and are provided to the lenders by the three major credit reporting agencies: Equifax, Experian, and TransUnion. In 2001, Fair, Isaac and Equifax launched Score Power and this is the only service that enables consumers to buy their FICO score for lenders' use. A credit report score is a three-digit number that enables the lender to assess the creditworthiness of the borrower. It ranges from 300 to 850 and the borrower is considered to be more creditworthy if the score is higher and similarly the borrower is considered more likely to become delinquent on one or more accounts or file bankruptcy, if the score is lower. The following are the five categories of information on which the FICO score is computed. 1) Payment history: This accounts for thirty five percent of the credit report score and it includes whether past credit accounts have been paid on time or not. Public record and collection items, such as bankruptcies and judgments are also included in this category. The www.myfico.com site states, "These are considered quite serious, although older items and items with small amounts will count less than more recent items or those with larger amounts." 2) Amount owed: This accounts for thirty percent of the credit report score, which will get lower as the consumer gets overextended. A good credit report score indicates additional debt capacity of the consumer. 3) Length of credit history: Fifteen percent of the credit report score is based on length of credit history or the length of time consumers' credit accounts have been established. 4) New Credit: Ten percent of credit report score is based on the amount of new credit accumulated in the past 12 to 18 months. People with poor credit histories pose a greater risk if they open several accounts in a short period of time, as per the findings of a research according to the website of Fair, Isaac Company. This also covers the requests for credit, or "inquiries," which remain on your credit report for two years, although FICO scores only consider inquiries from the past 12 months. FICO scores can get lowered by excessive shopping for credit and opening up numerous trades in a short period of time. 5) Mix of credit - If your history does not have much information on which to base your credit report score, the credit mix might become a key factor, otherwise it is not that important. Installment credit tends to raise the score and credit cards tend to lower it. Multiple loans from finance companies will also lower the credit report score. A consumer's debt-to-income ratio, income, length of residence and length of employment at a current or past employer are not considered in FICO credit report score or by the credit bureau. Since a credit report score is a very important parameter in determining favorable terms when applying for a loan, the knowledge of how it is compiled and the factors on which it is based will go a long way to enable consumers to better manage their debts and some of the factors that contribute to the statistical model that formulates the score such as: payment history, the number of available credit lines, number of recent credit inquiries, as well as the types of credit in use. The higher the credit score, the more favorably lenders will view your credit application. A credit report score can be improved by: 1) Paying down credit card balances, preferably in full, and never making just the minimum payment 2) Always making payments on time 3) Being discreet about opening new accounts 4) Acquiring solid credit histories with ample years of credit experience. |
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