Basic of FICO Scoring
FICO scoring is a system that lenders and underwriters use to determine what your interest rate on a loan is going to be. If you buy a house or car, the mortgage or the loan is determined by you credit report and your FICO score.
That score is based on the FICO model and the interest you pay, as well as your monthly payment, is based on what your personal credit score number is.
Just as with a car loan or house loan, you FICO score determines your interest rate. Something most people do not know however, is that a FICO score can also affect your chance of finding new employment, which is increasingly important in the current economy.
FICO scoring is calculated from a multitude of different credit data and it is grouped into five different categories.
We will include in every category a certain percentage to give you an idea of the importance each area plays in determining your personal credit score.
Payment history (35%)
Your payment history is the largest factor in determining FICO scoring. This includes the number of unpaid bills you have, any bills sent to collection, bankruptcies etc. The more recent the problem, the lower your score.
Outstanding Debt (30%)
How much of the total credit line is being used on credit cards and other revolving charges? High balances or more precisely, balances that are close to your credit limit can negatively affect your credit score. Most lenders think 40%-60% of maximum is ideal.
Length of your credit history (15%)
How long have your accounts been open? High loan amounts that you have paid as agreed and have had open a long time work best. Closing old accounts can have a negative affect because it makes your credit history appear shorter.
Recent Pull of Credit (10%)
Every time you apply for any kind of credit you create an inquiry on your credit report. A lot of inquiries negatively affect your credit score. However, ordering a copy and checking your own credit report or personal credit score counts as a soft inquiry and does not go against your score.
Credit Types (10%)
Is your credit from a car loan or a mortgage? If it is a mortgage, how much do you currently owe compared to the original amount loaned. How many accounts are open. It is not always beneficial to open a new account to receive more available cred
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