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It’s Important to know your FICO Score!
Your FICO score (also known as your beacon score) is
your credit rating. The name FICO comes from credit
bureau agencies using software developed by Fair Isaac
and Company. You have a total of three FICO scores, one
from each credit bureau agency, including Experian,
TransUnion, and Equifax.
Most lenders base approval on your FICO score. The list
for uses of credit scores is rapidly expanding and is
now being looked at not only by financial institutions,
but also by insurance companies, employers seeking new
hires, and others.
By knowing your FICO score, you can determine your
borrowing eligibility, receive the best rates, and
therefore pay less in interest charges.
What makes up the score?
• 35% is based on payment history;
• 30% is based on capacity;
• 15% is based on length of credit;
• 10% is based on accumulation of debt in the last 12 to
18 months, which would consist of the number of
inquiries and opening dates;
• 10% is based on a mix of credit. Examples: Installment
loans (raises score) vs. revolving loans (lowers score)
and the total number of finance company loans (lowers
score).
What actions will hurt the score?
• Missing Payments (regardless of dollar amount, it will
take 24 months to restore credit with one late payment);
• Credit cards at capacity (i.e. maxing out credit
cards);
• Closing credit cards out, which lowers available
capacity;
• Shopping for credit excessively;
• Opening up numerous trades in a short time period;
• Having more revolving loans in relation to installment
loans;
• Borrowing from finance companies.
What doesn’t affect the score?
• Debt ratio;
• Income;
• Length of residence;
• Length of employment.
How to improve the score?
• Pay down on credit cards;
• Do not close credit cards because capacity will
decrease;
• Continue to make payments on time (older late pays
will become less significant with time);
• Slow down on opening new accounts;
• Acquire a solid credit history with years of
experience;
• Move revolving debt to installment debt.
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