FICO is a scoring system usually used in the United States to aid you in determining how your credit scores are being calculated. To understand the calculation better, here is a brief explanation:
Your payment information is where thirty five percent of the calculation comes from and based on. Any disapproving information that causes negative effect on your credit score, like late payments and judgments, will all be checked by the system. Another factor that the FICO carefully looks at is the age of the occurrence to know how least or worse it can affect your credit score. While the other thirty percent is on the type of debt you have and the amount of money you indebted.
For the plastic debt or revolving debt, the calculation is centered on the disparity between the balance owing and the available credit. The smaller the difference between the two the more it will hurt your score and rating. Plastic debt is a type of debt that any credit or store card is considered.
Two more types of debt being checked by FICO includes the installment debt, where you are making reimbursement over a period of 30 to 60 months, and the open debt (the least common among the types) which is paid in full every month.
The calculation of another fifteen percent is based on your credit history. It is where the FICO reviews the length of time that you’re credit has been used based on when the oldest account has been opened.
The other ten percent is based on the spread or range of your credit. To make your score better, you must have more variety on the credit you have. The more you use your credit for different kinds of loan and mortgage, the more positive it will put in your credit score.
And lastly, inquiries made in your credit report contribute to the remaining ten percent of the calculation. These are the inquiries by companies or lenders to get a background check of your credits. The lower the inquiries the better since having many inquiries will initially give an impression that you are in a financial problem.
How Your FICO Score Is Calculated
FICO Score is calculated based on the credit report of the borrower wherein financial activities are being recorded. Such financial and credit information is being mathematically formulated to come up with the 3-digit FICO score usually between 300 to 850. 35% of the calculation is based on the payment history, the other 30% is based on debt ratio, 15% from credit history, 10% from the credit type and the remaining 10% from credit inquiries.
You have to be responsible enough to check once a year your credit report just to make sure that there are no errors and any misinformation in the report that would definitely cause negative effects on your score. Also, doing the checking and monitoring will help you fix it as soon as possible.
Scores usually range from 300 up to 850, 300 being the bad score and 850 being the best. Borrowers have a score that is in between. There is significantly a number of people who are in the 720 score which of course get better terms and rates for their loans. Most of the time, those with 600 below score have a higher interest rates.
Out of the many rating systems, FICO score is one of the mostly used. It is important that when you check your rating you have all the information that you need in order to maintain a good score. You also get the chance to see what lenders think about you.
“FRA Financial Group Founder Joe RoosEvans is an industry veteran who has built one of the nations’ most successful Independent Marketing Organizations – Financial Resources of America and its affiliated companies, including FRA Financial Group.”