With the changes in lending guidelines, credit scoring has become even more important to you. It is the basis that determines the interest rate of your loan. A FICO score of 740 or higher will get the average borrower the best rates. FHA loans are more forgiving and will lend on a FICO score of 660.
Fair Isaac has the formula on how this number is calculated and is considered proprietary, and not revealed. We do know some of the criteria used to determine the FICO value.
1. 15% of the score is determined by how long you have had credit. The longer track record the better they can determine your credit risk.
2. 30% of the score is outstanding debt. Keep your cards at no more than 29% of their value. You want to show that you do not live beyond your income.
3. 35% of the score is your payment history. Pay your bills on time, bankruptcy, collection company notices, and late payments will pull your score down. Start today being timely, the score will improve in time.
4. 10% of your score comes from the types of credit that you have. Car payments, house payments, credit cards, student loans, all types are considered.
5. 10% of the score comes from credit inquiries. These are made when you apply for loans, credit cards, etc. The reason they pull the core down is they indicate financial problems, or an intent to increase your debt load.
6. Your FICO score determines whether you will be given a loan or not, and the rate you will pay in interest. The score changes monthly, and is calculated on information from the three major credit bureaus. Please seek professional advice on how to improve your credit score.
Comments (2)Subscribe to CommentsComment