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How Do They Figure My FICO Score?

How Do They Figure My FICO Score?

How Do They Figure My FICO Scor

It’s impossible to accurately calculate your FICO credit score, but you can get a pretty good handle on what goes into that mysterious number. Unfortunately in the U.S. our character is defined by our FICO score as there is a proven correlation between credit and overall risk. Not only creditors but also employers, landlords, car rental firms, insurance companies or anyone that requires a background check rely on the FICO score to determine if you are good risk or a bad risk. The FICO score reveals your financial responsibility. There are five major components that form the basic score and there are five major damage points. The five components are payment history, amounts owed, length of credit history, types of credit used, and new credit. The five major damage points are maxed-out credit card’s 30-day late payment, debt settlement, foreclosure and bankruptcy.

Here’s the scoop:

PAYMENT HISTORY: Makes up 35% of your FICO score. How well you pay your credit accounts and other bills is the most significant part of the FICO score. If you miss a payment on a mortgage, car loan or other high balance loan it will have a greater impact of your FICO score then missing a payment on a low balance store credit card.

AMOUNTS OWED: Makes up 30% of your FICO score. The amount you owe on each account is the second biggest component of the FICO score. If your balances are more than 40% of your credit limit then you may start to see some erosion in your FICO score. Maxing out credit cards may indicate you are in a pinch and perhaps a little shaky financially.

LENGTH OF CREDIT HISTORY: Makes up 15% of your FICO score. It’s important to begin a credit history as early as you can. The longer you have handled credit the better as it shows your commitment over time in paying your bills on time.

TYPES OF CREDIT USED: Makes up 10% of your FICO score. This component demonstrates that you can handle all types of credit including credit cards, car loans, mortgages, and installment loans. Many utilities and phone service providers will contribute to this mix too.

NEW CREDIT: Makes up 10% of your FICO score. Opening new credit accounts is little dicey as it may enhance your FICO score or it may dampen it slightly. If you open several credit cards in a short timeframe, then this could indicate you are struggling financially.

MAXED-OUT CREDIT CARD: If your FICO score is 680 (average) then it will drop between 10 and 30 points. If your FICO score is 780 (primo) then it will drop between 25 and 45 points.

30-DAY LATE PAYMENT: If your FICO score is 680 (average) then it will drop between 60 and 80 points. If your FICO score is 780 (primo) then it will drop between 90 and 110 points.

DEBT SETTLEMENT: If your FICO score is 680 (average) then it will drop between 45 and 65 points. If your FICO score is 780 (primo) then it will drop between 105 and 125 points.

FORECLOSURE: If your FICO score is 680 (average) then it will drop between 85 and 105 points. If your FICO score is 780 (primo) then it will drop between 140 and 160 points.

BANKRUPTCY: If your FICO score is 680 (average) then it will drop between 130 and 150 points. If your FICO score is 780 (primo) then it will drop between 220 and 240 points.

Finally, it’s important to monitor your FICO score if you are active financially. If it slips then you need to take corrective action such as making sure any negative information is accurate or finding a way to repair the negative item. Keep in mind the lenders will set your interest rate based on the FICO score. Also, employers do not hire people to handle money with low FICO scores. Over a life-time the cost of bad credit risk versus good credit risk is astronomical.

More information visit myfico.com

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