FICO Credit Report Score: The Key To Building Better Credit |
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Fair Isaac and Company, or FICO, produces most credit bureau scores used in the U.S., whihc is why they're called FICO scores. A FICO credit report score is a measure of your creditworthiness and can range between 300 and 850. The risk of granting loan decreases as the credit report score goes higher and vice versa. The three major credit-reporting agencies: Equifax, Experian, and TransUnion provide the FICO credit report score to the lenders. Why Does FICO Credit Report Score Change From Time To Time? Your FICO credit report score is calculated on the basis of information contained in your credit file. Naturally your FICO credit report score also changes as your credit history changes. Moreover, different credit bureaus provide information at different times and some creditors report information only to certain credit bureaus and not to others. These factors cause the changes in your credit report score from time to time. Benefits Of Credit Scoring In Relation To Credit Report Score Credit bureau scores allow for speedy and objective analysis of credit histories. As a result, borrowers whose credit report score is good can get loan approval or credit almost instantly and borrowers who once might have experienced problems with individual lenders' prejudices are less likely to do so. Credit scoring brings a new level of fairness to the credit-granting process as it is objective and based on large volumes of verified statistical data. How Is The FICO Credit Report Score Computed? Essentially FICO, or the credit bureau score, is based on information drawn from your credit report, using about 30 individual factors, which can be categorized in five areas (in order of importance): 1) Payment history: Consistent on-time payments will boost credit report score, whereas frequent late payments, public records such as judgments or bankruptcy, or derogatory notes like charge-offs or accounts turned over to collections will bring the credit report score down. 2) Outstanding debt: The number of outstanding balances appearing on the credit report, the average balance and the ratio of total balances to total credit limits on revolving debt are some of the factors affecting the credit report score. You should aim for balances to be under 30% of your credit limit, whereas balances above 50% will harm your credit. 3) Credit account history: You should not close old accounts before applying for a loan as established credit history makes you a less risky borrower 4) Recent inquiries: When a lender or business checks your credit, it causes a hard inquiry and slight dings to your credit report score. You should apply for new credit in moderation as a large number of inquiries and new accounts do not augur well for your credit report score. Pre-approved offers or checking your own credit report score will not impact your credit report score as they are soft inquiries. 5) Types of credit: A healthy credit profile should have a balanced mix of credit accounts and loans. Whenever a credit report score is generated, the credit bureau also lists four significant reasons - either for a poor credit report score or, in the case of a good credit report score, for why it isn't perfect. The reasons could be: amount owed on accounts is too high, delinquency on accounts, too many bank or national revolving accounts, too many accounts with balances, too many recent inquiries in the last 12 months, too many accounts opened in the last 12 months, proportion of balances to credit limits is too high on revolving accounts, amount owed on revolving accounts is too high, length of revolving credit history is too short, time since delinquency is too recent or unknown, length of credit history is too short, lack of recent bank revolving and account information, proportion of loan balances to loan amounts is too high, lack of recent installment loan information, etc. |
