CREDIT SCORING / FICO

• 22 of the top 25 retail card issuers worldwide
• 7 of the 10 leading telecommunications providers in the US
• three out of four US mortgage originations

In 2001 Fair, Isaac & Company teamed up with Equifax to launch Score Power tm, to provide consumers access to their FICO® score, the same score that lenders use to qualify creditworthiness.

There are three major credit reporting agencies that score your credit using the FICO tm system:

• Equifax
• Experian (formerly TRW)
• Trans Union

For a small fee, each company compiles and provides you the credit score, which you may take with you when applying for any type of credit or loan. Having this score in hand could shorten the time it takes to actually receive a loan.  


HOW YOUR CREDIT IS SCORED
Your credit score number is determined by grading elements of your credit.

1. Your Payment History (35%) - Timely payments are green lights to any lender, and FICO takes information from a variety of sources to give a more complete picture of your history. Late payments do not automatically lower your score. Since information is widely gathered, attempts to improve credit standing are also evaluated, raising your score and balancing out many negative credit actions.
   
   
2. How Much You Owe (30%) - Amounts owed on all your accounts are factored in, including whether balances are paid in full every month and how many accounts you pay each month.
   
   
3. Length of Your Credit History (15%) - Consider how long you have had certain accounts and how long it's been since you've used them.
   
   
4. New Credit (10%) - If you constantly apply for new credit, a lender may regard you as less likely to consistently pay off all balances since your money is spread out across all accounts. Be selective when applying for credit to benefit your overall score in the long run.
   
   
5. Types of Credit (10%) - FICO takes into account every type of credit you have to contribute to your complete credit picture.
   
   

HOW TO GET YOUR CREDIT SCORE
Obtain your FICO tm credit score from your mortgage professional.

The full report shows your FICO tm credit score and outlines how you measure up to the 5 criteria.

A score of 660 or higher is considered excellent and should put you on the fast track to a loan underwritten with very favorable terms. A score lower than 660 may also be approved, but lenders may take more time to explore details of your history to establish you as a creditworthy borrower.

If your score is too low and you are denied for a loan, the lender must provide you with the reason codes for the denial. This list of reason codes is considerable, and includes items from delinquency on accounts to no recent revolving balances. Keep in mind that such activity can affect loan approval.  

Click here to find out how to get your Credit Reports

1. Pre-Loan Application - Get a copy of your FICO credit score before you submit any credit applications. Excessive credit inquires lower your score so limit the number of credit inquires pulled on your file. Many merchant credit departments will shop your application to several lenders and each of them will run a credit inquiry on your social security number. Even though you will finance through only one lender several inquires will show on your record. Take a recent FICO score with you when you shop for purchase financing. Negotiate your best financing and then submit your application, creating only one inquiry for that transaction.  This prevents unnecessary credit hassles and saves you from having to provide multiple letters of explanation to the credit reporting agencies.
   
   
2. Improve Your Credit Score - Your credit score should accurately reflect your credit history. See: How To Improve Your Credit Score
   
   
3. Annual Credit Check-Up - Check your FICO credit score once a year to be sure you are being accurately reported by your creditors and each of the credit reporting agencies. See: Protecting & Credit Strategies  
   
   
   

1. Pay Your Bills On Time - This reassurance will go a long way in assuaging any lender worries.
2. Consolidate Your Accounts - Pay down high balances, but don’t close down too many accounts at once in an effort to boost the appearance of your credit standing. Lenders look back two years to evaluate credit and can spot a quick cover-up at ten paces. Closing unneeded or unused accounts is never a bad idea; just don’t do it all at once right before you apply for a loan.
3. Keep Your Credit Report Accurate - Be sure credit report errors are cleared up with the company immediately. Order your credit report from each of the three major credit reporting agencies once a year to assure the records are accurate (see Credit Reports for details)
4. Seek Counsel If Needed - Credit counselors are in the business of making your credit more manageable to get you on the road to financial freedom sooner: a condition that lenders find very attractive. FICO does not count credit inquires from credit counseling agencies. A counseling agency may be able to reduce your interest charges and payment size, but may not be able to reduce the amount you owe.
5. Avoid Bankruptcy - Know that bankruptcy will have a negative impact on your credit score and will affect your ability to get future loans. Only file bankruptcy as a last resort.
6. Keep Your Public Records Clean - Resolve any public records, such as tax liens or judgments; as these are potential deal-breakers in terms of receiving a loan. Once a year, check the county records under your name to assure the records are accurate.