As soon as you receive your personal copy of your credit report score, the next important step is to scrutinize its contents. In this article, let us discuss the basic facts about the FICO method of credit scoring to help you interpret the information in your report.
The three major credit report firms (Experian, Equifax, TransUnion) as well as other financial companies make use of the FICO model in calculating consumer credit scores. Nevertheless, it’s important to understand that each bureau does its own reporting, separate from the other 2 major bureaus. For this reason, you may find some variations with the reports issued by different bureaus. This is also why consumers are advised to order one copy of their report from each credit bureau to make sure that all versions are accurate.
There are five aspects in the FICO credit scoring model that can affect your final rating. These are length of credit history, the types of your accounts, payment history, credit-to-debt ratio, and public records. Based on the FICO model, each factor comprises a percentage that will add up to the final credit rating.
FICO scores can range anywhere from 300 (poor) to 850 (excellent). However, different companies have varying standards in determining the average credit score from that of an excellent or poor rating. For instance, a score of 600 to 620 can be considered by some lenders as merely average. For lending companies that require good to excellent rating, you may need to present a score of at least 700 and higher to qualify.
Obviously, a higher credit rating will surely impress potential lenders as opposed to an average or a low rating. Why is this? Since payment history makes up 35% of the FICO scoring system, a high score indicates that the borrower has the capacity to manage debt payments without difficulty.
If you have a plan to apply for a personal loan, a car loan or a new credit card, it is strongly recommended to check the status of your credit history before submitting your application to a creditor. Furthermore, check your chosen lender’s credit rating requirements to make sure that your application will not be declined.
What can you do if you find that your credit score does not live up to the standards of your preferred creditor? If possible, you can give yourself at least six months to work on improving your score. You can boost your rating by paying off your outstanding balances and keeping up with your current payment due dates. After six months, order a copy of your credit report score to check your progress. Remember, raising your credit score even by a few points can make the difference in getting your application approved or in getting a lower interest rate from lenders.
About the Author:
Suzy Vanstrusen is a credit analyst and a writer on the website EZCreditRepairSolutions.com. She has been providing consumers with tips and wise information about credit repair as well as helping you out more with your bad credit loans. Copyright © 2010