How to Understand and Protect Your FICO Score
Source:
http://boiserealestateinfo.net
Publish Date: 10/01/2008
The initials FICO stand for Fair Isaac Company, a credit-reporting agency that was started back in the 1960s. Although it has the name Fair in it, many consumers don’t think that FICO scores seem fair, especially when they are applying for credit and a point or two can mean the difference between getting the loan approved or being flatly rejected. But there are ways for the informed borrower to raise their all-important FICO score, improve their credit history, and enhance the chances of success when applying for a mortgage or other type of credit.
FICO scores range from 300-850. The better your credit, the higher your number. Good credit has perks, including lower interest rates on loans. But low scores can mean paying higher rates or having your application for credit totally rejected.
The score is calculated using these five main factors:
- Payment history makes up 35 percent of the score.
- Amounts owed to creditors account for 30 percent of the score.
- The length of credit history counts 15 percent.
- New credit influences the score 10 percent.
- The type of credit you use accounts for 10 percent.
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When considering your score and how to improve it, keep in mind that delinquent payments, missed payments, and hefty outstanding balances have the worst impact on your score. Pay on time and keep balances low and you can raise your score automatically. Applying for lots of new credit also weakens your score, because each time a lender runs your credit it causes a negative hit on your score. So resist the urge to do fill out applications every time a credit card offer comes in the mail or your friendly merchant offers you a 10 percent discount on a purchase if you will just apply for their store credit card. But checking your own credit does not cause an adverse impact, so do it on a regular basis. If you suspect mistakes in your credit report, report those with a clear explanation to credit agencies and ask them to erase them. The “big three” national credit reporting agencies – Equifax, TransUnion, and Experian – share information with FICO to help keep credit histories updated, but that process has limitations and flaws. To ensure that your credit reflects facts – not outdated or erroneous information – it is important that you secure a copy of your reports at least once per year, review them, and protest any inaccuracies. By law you can get your reports for free once FICO scores are not credit reports, but are instead a mathematical system for distilling credit report information into an easy to read number. But FICO numbers are based on credit report data, so the best way to protect your FICO score is to have strong credit reports. ### You have my permission to republish the “In My Opinion” articles in your web site, newsletter, or ebook, if you follow these terms and conditions:
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every 12 months or whenever a lender turns you down based on your credit report. After filing a complaint about something found in your report that you think is wrong, it can take a few months for the change based on your request to finally make it into your report. For that reason it is wise that before applying for a mortgage, for example, you first polish up your reports well ahead of time. Even if the reporting agency doesn’t agree to remove the notation from the report, they will add your side of the story so that anyone reviewing your credit can hear your own explanation. Sometimes that’s all it takes to tilt your credit to your advantage.