You may have heard that until recently your FICO score is now accessible to you, but what exactly does FICO mean? Furthermore, you are probably wondering, “How is my FICO score evaluated?” The acronym FICO is named for Fair, Isaac and Company. The scoring system was created as a means to determine your credit worthiness. Knowing your credit score is important when shopping around for the best rates. The higher your score, the more leverage you have when shopping for any type of loan. If your score is on the lower end of the scale, you can begin to work on ways to improve your score and increase your credit worthiness.
Factors that determine your FICO score:
Payment history– Late payments and the frequency of past due payments is a considerable factor when determining your score.
Outstanding balances– Total balances, and owing a lot of money on different accounts will negatively affect your score. If you are “maxing out” all of your credit cards, lenders may see someone likely to make late payments or no payments at all.
Length of credit history– How long your credit accounts have been established, and how long it has been since you used certain accounts factor in the scoring process.
New Credit-If you are opening several accounts in a short period of time, lenders might see this as a high-risk situation. Trying to obtain a high amount of credit could show that the customer might have substantial cash flow issues.
Types of credit-Aside from the total number of accounts you have, the various types of credit you have are evaluated. (Credit cards, retail cards, mortgage loans, or installment loans)
Knowing your score is important when applying for a loan, but understanding the factors that go into these scoring systems is key. In order for you to maintain your excellent credit, establish credit history, or improve your score you have to understand how your spending habits can affect your application process.
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