Do you really know what a FICO score is and how its worked out? Even if you do know what it is it can be important to understand something about how it is calculated because then you can improve upon your current score thus improving your ability to gain credit and to gain credit on good terms too. The name “FICO” comes from a company named Fair, Isaac and Company, and it is used to assess credit worthiness of a consumer.
In North America, all lending activities are recorded by three major companies – Equifax, Experian and Trans Union. This information then goes into making up the FICO score which is based upon a scale of between 300 and 850. This score is used by other companies in assessing your ability to pay back credit. Such companies may range from insurance to credit card companies and even now a days – potential employers.
The determination of the actual score is carried out as follows:
- The payment history of the consumer. This makes up over a third of the entire score. So, if for example a consumer has made some late payments to pay off credit or perhaps even defaulted on some payments then this will very much go against their record. If on the other hand the records show quite the opposite and all payments have been made in a timely manner, then the FICO score will reflect this.
* Existing debts are also considered, and this make up another one-third of the credit score. The ratio of current debt to existing available credit is considered and this will reflect on the person’s score. Credit cards that have been maxed out are often very bad and it will definitely give a bad reflection of a person’s paying capacity.
* Length of the credit history, types of overall credit, and recent credit applications make up the final one-third of a person’s credit score. Of the three, the length of a person’s credit history is important because it determines the person’s ability to maintain a credit card. People who have had the credit card for very long will definitely be better clients than one who have just been using their credits for a few months. Recent credit applications will also be investigated; and people who have several pending applications will seem as though they are desperate for money and so might be a risk. Finally, the type of credit that people make is observed; and a person with a credit report that consists purely of credit card transactions will be a big risk.
All these help determine your credit score and this information can help you maintain better credit standing so that you may be a better candidate for a loan. Remember that should the need arise you need to be able keep a good score so that you can qualify for a loan; and this can only be accomplished if you maintain your credit standing.
You can learn more about credit card help and about a debt consolidation program to suit your needs.
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