What Is a FICO Score and How Do I Make It Work for Me?
Whether or not you receive a loan and what interest rate you get on your credit card may be determined by something called a FICO score. Named for Fair, Isaac & Co., a California-based company that developed the credit score, the FICO score is the most widely used scoring method to determine credit worthiness.
Scores range from approximately 300 to 800 and are provided to lenders by the three credit bureaus, Equifax, Experian, and TransUnion. You also have access to your FICO scores, but will be charged a fee by each credit agency providing your report.
According to Fair Isaac, the credit scores of the American public are divided as follows:
? 499 and below 1 percent
? 500-549 5 percent
? 550-599 7 percent
? 600-649 11 percent
? 650-699 16 percent
? 700-749 20 percent
? 749-799 29 percent
? 800 and above 11 percent
A score of 720 or higher will probably get you the best interest rates on a home mortgage. Your credit card company looks at your credit score to decide whether or not to raise your credit limit or charge you a higher interest rate. The higher your credit score, the better you look to lenders and the lower your interest rates.
Raising your FICO score can make a big difference to your wallet. Some basic actions you can take to improve your score include paying your bills on time, lowering your account balances, and not taking on new debt.
Around the time you intend to apply for a loan, several factors can decrease your FICO score and, therefore, your ability to qualify for credit and low interest rates. First, order copies of your credit report from all three bureaus and correct any errors you find. Be sure that balances you have paid down are reflected on the report, along with closed accounts and settlements.
It's important to get your credit scores from all three credit reporting agencies. Each bureau may have different information about you as reported by retailers and creditors. Clerical errors at a particular agency may also result in a varying score. Lenders often look at all three FICO scores, and rather than using the average of the three scores, they may use the middle score to determine your credit worthiness. Finding out what this middle score is and doing what you can to raise it is to your advantage.
Second, pay what you can on your debt rather than moving it around. Consolidating your credit card debt may be tempting, but it could lower your FICO score. Here's why: keeping your account balances between 25% and 50% of your available credit, signals a responsible borrower. For example, if you have a credit card with a $2000 limit, you should keep your debt below $1000. The ratio of your credit card balance to your credit card limit will increase if you pile all of your debt into a couple of accounts, rather than keeping it spread out over several.
If you have three credit cards with limits of $2000 each, and you owe a balance of $1500 on all three combined, you have a total credit limit of $6000 on which you owe a balance of $1500. That's a debt to credit limit ratio of 25%. But if you consolidate your $1500 debt into one card with a $2000 limit, you increase your debt to credit limit ratio to 75%, an unfavorable factor in your overall credit score. For this reason, the best solution is to simply pay off your existing cards as quickly as possible.
Also important in making the most of your FICO score near loan time is keeping unused accounts open, for the same reason as listed above. Your debt to credit limit ratio will rise drastically if you close your unused accounts. Wait until you have secured your loan to trim inactive accounts from your credit report. Also refrain from applying for any new accounts during this time.
Paying off your debt in a timely manner, building a solid credit history over a lengthy period of time, and erasing errors from your credit reports can all help you make the most of your FICO score and, in the end, make the most of your money.
Resources:
Equifax 800 525-6285 http:///www.equifax.com
Experian 888 397-3742 http://www.experian.com
TransUnion 800 680-7298 http://www.tuc.com
Credit Damage 714 441-0900 http://www.creditdamage.com
Cathy Taylor is a marketing consultant with over 25 years experience. She specializes in internet marketing, strategy and plan development, as well as management of communications and public relations programs for small business sectors. She can be reached at Creative Communications: creative-com@cox.net or by visiting http://www.creditdamage.com or http://www.internet-marketing-small-business.com
MORE RESOURCES:
 |
|
|
RELATED ARTICLES
Rebuild Your Credit the Right Way the First Time
If you are one of the millions of people out there with bad credit you need to step up and start doing something to get yourself back into credits good graces. Having good credit is the only way to assure that you will get the best interest rates on any loans and credit cards that you apply for.
How To Save Money On Credit Cards
Some credit cards offer a cash advance option. But how good a deal is this?Not very.
Why Americans Find Predatory Lending Offensive
"Menis - the author translates as "indignant rage" - It is the kind of rage arising from social betrayal that impairs a person's dignity through violation of "what's right." (p21), Achilles In Viet Nam - Combat Trauma and the Undoing of Character, Jonathan Shay, M.
Credit Card Is Adding The Silver Lining To Your Pocket
In the new millennium plastic money or credit cards has rendered a new zing factor to your pocket. This has not only made you economically more flexible but subsequently added glamour to your financial image as well.
Repairing Your Credit Score and Clearing Derogatory Marks on Your Credit Report
Raising your credit score can be a fairly simple and straightforward process unless you have derogatory marks that need to be disputed (which will be explained below).The reasons for bad credit can be as follows, high balances, bankruptcies, late payments, and many others.
Identity Theft - Additional Protection for Soldiers on Active Duty
Congress passed the Fair Credit Reporting Act several years ago in an attempt to smooth out some problems in the credit reporting industry. The best known provision of this Act is one that permits Americans to receive a free copy of their credit reports from each of the three main credit bureaus once per year.
Credit Repair Kit Sound To Good To Be True? It Is.
A lot of people have bad credit. It is unfortunate that good people with good intentions are sometimes lured into credit card offers with outrageous interest rates or convinced to buy a new, overpriced car that they cannot afford.
Like It Or Not, You Have A Score To Settle! Part 1
Just when most people finish with school and can stop worrying about test scores, there's a new kind of scoring that enters the picture. It's called credit scoring.
What Are the Most Common Ways to Commit Identity Theft or Fraud?
It's the number one source of consumer complaints at the Federal Trade Commission (FTC), and unfortunately, it's one of the simplest crimes to commit. Identity theft involves information from your daily life, from shopping, bill-paying, and even applying for a job.
Credit Cards: What is the Universal Default Clause?
Most people who carry major credit cards are well aware that the interest rates associated with them tend to be higher than for other types of lending, such as home or auto loans. Anyone who has paid their credit card bill late more than once or twice is also aware that doing so may cause the interest rate on their card to go up - sometimes by quite a lot.
Lower Your Credit Card Interest Rate Now!
With today's credit card companies, there are many opportunities to get your cards rate of 21% or more reduced. The higher the amount of interest your card charges will cost you more for a simple purchase and ultimately may take you years to pay off instead of months, should you make the minimum payment allowed.
Five Debt Negotiation Facts
These five debt negotiation facts along with a few debt reduction planning tools gives you the ability to control your own debt. For many people today credit card debt is a mounting problem and very few know how to successfully negotiate debt settlements.
How to Evaluate and Raise Your Credit Score
Why do some people get offers for pre-approved credit cards and others don't? What do car dealers know about your financial health that you don't know? The answer is your credit score.Your credit score is a number generated by a mathematical formula to estimate how likely you are to pay your bills.
Free Credit Report - Really
2005 marks the year that consumers will be able to get a free credit report each year. The roll out of the Fair and Accurate Credit Transaction Act signed into law by President Bush actually began last December 1.
Is Plastic Making You Happier?
If you're like most people, you probably own at least one.And like most people, you've maybe never thought what it's really costing you?At a recent conference held by the Fabian Society at London's Imperial college, one of the issues discussed was happiness, and, more specifically, why it seems to elude so many of us.
Useful Tips on Using Credit Cards
Here are some useful tips on using credit cards. Whether you shop online, by telephone or by mail, a credit card can make buying many things much easier; but when you use a credit card, it's important to keep track of your spending.
Ways to Look Good without Selling Your Soul to the Credit Card Sharks
1. Buy clothes at thrift stores.
How to Repair a Bad Credit Rating
If you have a bad credit rating, then you might find that your ability to get financing, loans, and even some jobs is greatly diminished.Once you have a bad credit rating, it might seem like there's nothing that you can do about it? but you don't have to believe that.
Why Does Your Credit Card Rate Keep Going Up?
Have your read your credit card contract through completely? Do you know when it is okay for your creditor to raise your interest rates? If you are not sure about how and when your rates can be affected over the life of your contract you should take a few minutes to read your contract thoroughly from beginning to end.Creditors must have clauses in their contracts that give them the right to change your interest rates.
Beginners Guide to Credit
I remember back when I was 18 and completely oblivious to the concept of credit. It seems like eons ago! If only I had known then what I know now about credit.
|