What is this mysterious entity that can make or break your deal? What should you know about credit scores so that you can repair or maintain your own score, or pass the information along to your clients? Maybe this will help.
FICO is the nickname of "Fair Isaac & Company", a credit reporting bureau originated by Bill Fair and Earl Isaac.
They designed a statistical model of behavior that assigns a score from 300-850 as an overall indicator of a person's use of credit.
This score is made up of five major indicators, with a weighed percentage of influence on the final score.
These items are: * PAYMENT HISTORY (35%).
Types of loans, delinquencies, number of accounts paid as agreed, etc.
The number of past due items and amounts delinquent are taken into account as well.
* CAPACITY or AMOUNTS OWED (30%).
Proportion of what you owe to your credit limits.
For example, having a $5,000 balance on a credit card with a $25,000 credit limit is looked upon much more favorably than having that same balance on a credit card with a $10,000 credit limit.
* LENGTH OF CREDIT HISTORY (15%).
Amount of time since accounts opened, since last activity.
A long stable credit history without huge swings up and down in your balances is obviously more favorable than a short history with sporadic credit activity.
* NEW CREDIT (10%).
Number of credit inquiries and new accounts.
A flurry of activity in new accounts opened signals "Danger, Will Robinson!" to the credit companies.
The same applies to numerous recent credit inquiries.
* TYPES OF CREDIT USED (10%).
Mix of credit sources; i.
e.
, finance companies, banks, installments, etc.
Finance company and revolving loans lower your score while bank loans and installment loans can be beneficial.
You can't "fix" a low credit score overnight, but you can certainly be informed as to what affects it so you can plan your comeback!