A FICO Score is a three-digit number that determines what lenders think about you. This number decides your interest rates on credit cards, mortgages, auto loans, and whether you will be approved for these loans.
FICO stands for Fair Isaac Corporation and is a formula based on your record of paying your bills on time (35%), debt to credit ratio (30%), length of credit history (15%), new accounts and applications (10%), and your mixture of credit cards and loans (10%).
Your Fico Score can range from 850, being the best to 300, at the worst. Make sure your FICO Score is in tiptop shape, follow our tips, and improve your score.
Your Fico score is based on your credit history, so it’s essential to make sure your credit report reports the correct information. There are three credit bureaus: Equifax, Experian, and TransUnion. Each bureau has its own reporting system, and you need to obtain a report for all three. On your annual check-up, make sure all three bureaus are accurate and report the correct information. As a consumer, you are entitled to a free report yearly from each bureau. If there is any misinformation, file a dispute to get it corrected.
Before applying for a loan, it may be a good step to check your FICO score. As mentioned before, all three bureaus have a unique scoring system. To get the best rate, you want to make sure your best side is showing. Ask your lender which FICO they will be pulling before applying for a loan.
If your lender is pulling all three, it may be worth checking them all. The better the score, the better the rate. Knowing trade lingo will be helpful here. If your lender mentions the Beacon score, they are talking about Equifax. Empirica means TransUnion, and Experian is referred to as Experian or Fair Isaac Risk Model. ( Check out more from our Common Cents Blog for information geared towards enhancing your FICO Score)
Paying your bills on time is essential to a good FICO score. Since making your payments on time accounts for 35% of your FICO Score, this is a big todo. To achieve this step, all you have to do is pay the minimum balance each month on time. This alone shows your responsibility and reports beautifully on your credit report.
Closing your credit cards can do more harm than good. If you have had your credit card for a reasonable length of time, it holds the key to your credit history, which counts for 30% of your FICO score. By closing your credit card, you are wiping out your credit history, drastically lowering your FICO score. If temptation is your concern, cut your cards up and get rid of them securely. If you must close your cards, we advise closing your newest cards and keeping your oldest, retaining your credit history.
If you are going mortgage or auto shopping, too many lenders pulling your credit can lead to a dip in your credit score. To avoid this from happening, keep all of your shopping under two weeks. When you apply for a loan, the lender will want to see your FICO score right away. If you shop around and find the best rate within a two-week time frame, all the inquiries combined will count as just one. If not, multiple inquiries will appear on your credit report and be viewed negatively with future lenders.
We hope you find our FICO tips helpful in increasing and keeping your score in good condition. Keep responsible and make your payments on time. Check on your FICO score and credit report yearly to keep tabs on your financial progress. For more information on how to improve your FICO score, check our Common Cents Blog on our website.