The Fair Isaac Corporation is the company responsible for FICO scores. This score was invented by Fair Isaac in order to rate people’s credit worthiness. The Fair Isaac Corporation is the biggest credit score company in the world and gathers data from the USA’s three largest credit report companies: Experian, Equifax, and TransUnion. The score created by Fair Isaac uses special techniques and produces numbers ranging from 300 up to 850. Lenders use the FICO score to decide what sort of loans they should offer people who apply for them, and what their interest and repayment rates should be.
When working out a FICO score Fair Isaac uses a number of factors which mainly revolve around your history of payments and how much credit you have borrowed in the past. Whilst these make up the largest portion of the score, around two thirds in fact, the rest of the score is made up of the duration which you have had credit for and who the creditors are. The percentile breakdown of factors that combine to create your score is roughly as follows:
(Numbers in per cent)
– 10 based on creditor’s mix
– 10 based on new credit added
– 15 based on how long you’ve had the accounts
– 30 based on the total amount of credit you currently have
– 35 based on the history of your payments
Improving your FICO score isn’t too difficult if you put in a little time. There are several things which you can do in order to get a better FICO score.
Firstly, it’s important not to leave your payments late. Late payments are damaging to your FICO score. Waiting until the final payment date isn’t a good idea either as sometimes payments are not processed immediately and show up as late. The earlier you make payments the better.
Secondly, it is advantageous to keep open your old accounts even though this may not seem obvious at first thought. The reason this is helpful is that the ration of income to debt alters if you don’t have access to credit. Access to credit means that you are more able to pay off debt meaning that the FICO score will be more favorable. Keeping old accounts which are not in debt is therefore valuable to getting a good score.
Another thing which can be helpful to your score is keeping the amount of credit you borrow on your cards as low as possible. The higher the amount you are borrowing on your card the more damaging it is to your credit score. Only borrowing a maximum of 25 to 50 per cent of the maximum credit helps maintain a better score.
Owning cards for various department stores and other similar places is damaging to your credit score. If possible only use your standard credit card to make payments at these stores. Also, don’t take all the offers you get for new credit cards. Taking these damages your score as the account is new.
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