How Is Your Credit Calculated?
FICO evaluates several data points on your credit report to determine what your FICO Score is. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).
Here is how they compute your score:
Credit History (35%)
Lenders check your credit history to determine whether you pay your bills on schedule. The best way to measure this is by depending on how you have paid your bills previously. Late payments, credit used, and collections all influence the recorded history of your FICO rating.
Outstanding Debt (30%)
The amount of debt you have divided by your credit limit is known as credit usage. When you have a higher credit usage, you are closer to your credit limit. This will create a lower credit score. Keep your credit usage balance around 30% of your credit limit or less.
Length of Credit History (15%)
Having a more established record as a consumer is another positive aspect because it gives more data about your history with handling money. From experience, I see that once your credit file is roughly 7 years old, you benefit greatly. Also, remember that every time you get a new account, it will decrease your credit length average.
Each time you make an application for credit, a request is added to your report. A huge amount of credit request implies that you are assuming various financial problems or that you are in a difficult situation with your finances.
Different Types of Credit (10%)
Having various types of credit is ideal since it shows your experience with dealing with a diversity of credit products. This is not a big factor in your FICO assessment unless you don not have a lot of data they can utilize to determine your score. You can open new accounts as you need them to improve this.
What Are The Factors That Decide Your Credit Score?
The most significant factors in deciding your score are 1) credit history, it is a record of whether you have paid your bills on schedule. 2) Sum of debt owed. This is where they check the amount you are using and see how much you have spent on the credit available. Lenders may deny cases of borrowers who are almost within their credit limit as they are more likely going to miss some payments. 3) Age of history, which is a factor determined by the normal age of your credit, just to know how long the account has been actively used.
Errors in Reports
What Are Errors In Reports?
Errors that show up in reports may vary from the incorrect spelling of names, addresses, or other individual data. Different types of errors, for example, mistaken installment history or the expansion of credit accounts that you were not part of.
Credit bureaus will examine your report when you contest and file a dispute regarding the errors. In case you are not checking your credit, inaccurate data can go unnoticed for a considerable time. Those credit detailing errors could be risky and hazardous on FICO assessments regardless of whether you understand they are on your reports or not.
How Do I Fix These Errors?
Make sure errors are fixed as early as possible. Inform creditors and credit bureaus about incorrect data or missing details in your report. The results of your report can highly affect your chances of getting a loan. It will also determine how much you will have to pay to borrow money.
To fix these errors, you may contact both the credit reporting company and the company that provided the information to the credit reporting company. You will file a dispute not only to the credit reporting company but also directly file a dispute with the credit furnishers as well with similar important documentation.
When you request for your record to get fixed, be sure to have these things included:
Advantages Of Good Credit
Good credit is a financial assessment that measures a buyer's reliability and credit card history usage. Having good credit helps you save more money. An individual's FICO rating ranges from 300 to 850, and the higher the score, the more reliable an individual is viewed as.
Here are some of the best advantages of having good credit:
Credit Card and Loan Approval
Credit card or loan approval can be difficult if you have a bad credit history. A good credit score does not ensure loan approval due to other factors being considered: income and debt. However, a good credit score gives you a higher chance of getting approved for new credit.
An interest rate is a cost of borrowing money, and often, interest rates are connected to your credit score.
Your credit score will determine whether youâre qualified for the best interest rates where you will pay lower fees. Lower interest rates let you pay off your debt faster and help you save money.
Depending on your credit score, you can utilize it to negotiate a lower interest rate on your loan or credit request. You can also take advantage of other offers youâve received from various companies depending on your credit score. Unfortunately, creditors are less likely to approve of your loan terms if you have bad credit.
Approval for House Rentals and Apartments
Landlords often check their credit scores as part of their screening process. An eviction mark of an outstanding rental balance can ruin your chances in getting the rent approval as this is in your credit history.
More landlords are using credit scores to screen tenants. Meanwhile, if you have a good credit score, you can save more time in finding a landlord who will approve your rent request.
Increase Credit Limit
The loan amount depends on your income and credit score. Having a good credit score gives you the opportunity to apply for a credit limit increase because banks are going to look into your payment history and once you consistently pay on time, they will be more willing to approve your request.
What Is A Good Credit Score?
A score of 720 or above in a similar range is viewed as good. Most credit score assessment falls somewhere in the range of 600 and 750. Higher scores speak to more credit choices and can make lenders certain that you are able to pay your dues.
For your reference, hereâs the FICO score assessment chart:
Need help with credit repair? Contact us now to get started.
What Is Credit Repair?
A credit repair is a process where a person or business improves their ability to borrow money and aims for a good score on their credit by correcting wrong information in their credit report, using their credit responsibly and repaying their amount of debt more quickly.
For the most effective credit repair it is good to hire a professional licensed and bonded credit repair company.
How To Fix Bad Credit
By utilizing credit fix strategies such as paying obligations on schedule, negotiating with loan specialists for improved loaning terms, or negotiating your payment obligation to make financing costs reasonable, a borrower can improve their FICO score, this will result in making it easier to pay debt and the possibility getting approved with better payment obligation terms in the future.
Also, removing inaccurate, unverifiable, erroneous, incomplete, non-compliant data from the credit reports will help fix bad credit.
35% of your credit score is paying all of your bills on time. That is the biggest step towards obtaining good credit. Paying your bills 30 days late destroys your credit. Try to pay for everything before the due date.
The average client stays with us for 3-6 months. Some cases require less, some require more. When we file a dispute, creditors and credit bureaus have to complete an investigation within 30 days âa couple of special cases can stretch this out to 45 days. This is done in rounds of disputes, some files may take 2-3 rounds to get cleaned up, some may take 4-5 rounds. â
When you are looking for credit repair services to help fix your bad credit, it is best to ask what the previous clients have experienced from the past but remember each credit file will be different.
Credit repair companies analyze your credit report line by line and examine every detail of each account that is on your credit report.
âThen we challenge any inaccurate, unverifiable, erroneous, incomplete, non-compliant data from the credit reports with the credit bureaus and creditors. They also provide advice and tips to boost your score such as adding new positive credit history, paying the revolving debt down, and etc.
Rachel Gibbs has perfected her craft in terms of credit and finances. She is an expert in credit restoration and financial education, leaving her clients satisfied with the results.