How Is Your FICO Score Calculated?
Although the major credit bureaus have tried to roll out a new credit-scoring system (see the new credit scoring system article) the most widely-used credit-worthiness grade continues to be the FICO score (myfico.com):
myFICO is the consumer division of Fair Isaac, the company that invented the FICO credit risk score that lenders use. Starting in the 1960s, Fair Isaac sparked a revolution by pioneering credit risk scoring for the financial services industry. This new approach to lending enabled financial institutions to improve their business performance and expand consumers’ access to credit. Today Fair Isaac’s FICO score is widely recognized as the industry standard for lenders.
Your FICO score is calculated based on a 22-point formula with a possible range between 300 and 850. It is based on the following categories:
* Payment history (35% of the rating)
* Length of credit history (15%)
* New credit (10%)
* Types of credit used (10%)
* Debt (30%)
It is important to understand what your particular FICO score is, and determine ways in which you can improve it. While everyone has access once a year to a copy of their credit report from each of the major bureaus (see free credit report), you have to pay an additional fee in order to see what your FICO score is. Everyone has a different FICO score from each of the credit bureaus, and generally lenders will average the three or take the middle score.
Although income has no affect on your FICO score, there are things you can do to improve your score. Some of them include the following:
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Pay all bills on time
Think twice before closing accounts
Minimize credit-card applications
Keep balances low
For further explanation, or to read the entire article, visit moneycentral.msn.com
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