Here
Fico, here boy!
No wait - Fico isn't the family pooch, FICO is something much
bigger and something many of us don't understand, but are affected by
daily. Particularly those of us looking to buy a home or make
any other financed purchase.
Here's a brief overview of what FICO is and what it means to you.
FICO is just another credit score. Your credit score is a
number that summarizes your risk to anyone loaning to you, and FICO is
just one of the corporations that calculates your credit risk.
It stands for Fair Isaac COrporation - FICO! It's
the most popular score used by lenders to determine your risk to them.
When a lender orders a FICO score, they can order it from
any of the three agencies that maintain credit reports. The
FICO is calculated at that given time, based on the information on that
agency's credit report right then.
- Make sure you check your credit reports yearly for accuracy
- it's free!
- When YOU order your own score, make sure you're ordering a
FICO so you see what the bank sees.
FICO scores can range from 300 - 850! The higher the score, the lower
the risk you are perceived to be to the lender. This
generally translates into better approvals and better rates and terms
on financing. A person with an awesome FICO is considered to
have a great ability at maintaining their payments, credit, etc.
Someone with a much much lower score is seen to maybe not be
ready for a checkbook much less a loan.
Here's some of the big things that go into calculating your FICO score:
- Types of Credit you have (revolving, installments, etc)
- New Credit - including inquiries
- Length of overall Credit History
- Payment History - this is the biggest factor
- Amounts Owed - this is the 2nd biggest factor
From these and their importance, you can obviously guess that the
recommendations are:
- Have a mix of credit types to show your ability to handle
various credit lines, but not too many!
- Open credit you need, but don't open credit just for fun!
Keep inquiries to a minimum - when applying for loans, do
your inquiries as close together as possible so they register as one
product search and not as though you're opening 10 mortgages.
- Obviously the longer you have a history the more data they
have to calculate and the more time you've proven yourself.
This of course can only get better with time.
- Pay on time, every time. As late payments fade
in time, they'll affect you less. Set up automatic payments
of at least the minimum on all your cards so that you are never late.
Your FICO will thank you.
- The more you owe, the more overextended you look, the more
risk that one thing going wrong will send you into financial disaster
and the banks will lose all their money on you. So basically,
try to keep your balances down to less than 30% of your
limit.
For more information about FICO and how it affects you, visit
http://www.myfico.com/crediteducation
The more you know, the
more power you have, the more you can do!
photo courtesy of Trinity Credit Services, creative commons license,
Flickr.
For more
information about getting ready to purchase a home,
drop me a line or call anytime!
Sheree Wilkerson
cell/txt 316.461.0575
sheree@rwwichita.com
