Your FICO Credit Score Explained

Explaining Your FICO Score

Here you can see a FICO credit score explanation. FICO score is a name for an algorithm developed by Fair Isaac & Co. (FICO). Improving the FICO score has a huge impact on your family financial position. It is the most important parameter when coming to request a home loan or refinance a mortgage. It can be a ‘yes’ ‘no’ reply for your mortgage, or a low or high mortgage rate offer.

This credit scoring method takes into consideration lots of financial parameters about your payments behaviors. The purpose of this FICO score explanation is to help you understand how the lending companies and banks determine the likelihood that credit users like you will pay their money back.

As explained having a ‘good’ FICO score, has the utmost importance, because this FICO credit figure is used by all lenders (banks, government, and private lending institutes) use to evaluate how risky it would be to be lending you money. Those financial institutes may request to see some more financial facts about you, like income, salary wage, how long are employed and at the current job position and more..

What High Or Low FICO Score Mean

FICO scores range from 300-850 (higher is better) so your mission is repairing your credit and improving it upward.

If your FICO score is low… The lenders will know it is very risky to lend you money; and unless you improve and raise your credit score, they will either turn down your request, or place a very high interest rate on the money, or will give you a lower sum of money to borrow from them. This is how they secure themselves from possible losses.

Having a higher FICO score naturally or because you improved your FICO credit, means you are a welcome customer, who pays back money you borrow, as a customer who has more borrowing options open for him, the lenders will quote lower interest rates, so you will ‘buy’ the money form them. So the rates high FICO score holders get are much more attractive with lower interests rates.

Improving All Three FICO Scores

There are actually 3 credit scores for you to improve! As a credit using customer you have a score from each of the three major credit bureaus:  Equifax, Experian and TransUnion. Since you can not know from which of those credit bureaus your lender will request the credit score, those three will need to be improved by you.

What Does Your FICO Score Includes

The FICO score has 5 main KPIs (key performance indicators) these are the milestones of your score, they each have a different weight in the overall score, as different credit data is collected about your credit and payment history.

  • 35% – Payment History
  • 30% – Amounts Owed
  • 15% – Length of Credit History
  • 10% – New Credit
  • 10% – Types of Credit Used

What Does Each FICO Score Category Include

Payment History– Here you will find all your payment history summarized. There will be records of specific types of accounts such as your credit cards, paid retail accounts, installment loans, finance company accounts, mortgage home loans etc.. The lenders can see a full scope of your past credit activity.

In the Payment History category there will be marks of any bankruptcy, or judgments you may be carrying, any records of law suits, tax liens will show too, wage attachments, etc.

This section of the report will consider not only the amount of unpaid payments, but how long they are unpaid, how many unpaid items you have, and how many accounts were paid as agreed.

Amounts Owed– This part of the FICO report includes all of your amount owing on accounts, how much you owe, and how much you still owe sliced to specific accounts. In those accounts how much are with balances, proportion of credit lines used and proportion of installment loan amounts still owing. This gives the lender a close view how much money you are currently owing to other lenders, and how soon those are expected to be balanced.

Length of Credit History– For the lenders it is important to know how long do you have a credit line? A 21 year old person with X owed money can not be compared to a 35 year old person with 14 years of credit behind him with the same amount of debt. Longer credit history is better.

New Credit– Here the lenders can see all your recent credit activity, the number of recently opened accounts, and proportion of accounts that are recently opened, by type of account. All your recent credit inquiries which were done by lenders, how many inquiries where made, and how long ago.

In the New Credit section, you will see all re-establishment of positive credit history. If you had  past payment problems which where resolved, then in this section it will show that.

Types of Credit Used– This category includes numbers of credit accounts, and types of credit you used until present moment. In this part it will show all your credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.

Can You Fix Your Credit Score

Yes! But like many other things in life, it takes time, patience, and a lot of hard work. The FICO credit score has these five categories, and when you look at each of them with a microscope you can see that raising your FICO score is possible in many ways.

All late (or unpaid) payments lower your score, any re-establishment of due payments and straightening open strings will raise your score. The fist step is to request to see all 3 credit scores as they show with the major credit bureaus:  Equifax, Experian and TransUnion.

Credit Repair Companies– There are credit repair companies and private agents who will do all this work for you. Private companies charge high fees, as they know repairing the credit is worth a lot for you, as it will save you thousands in the mortgage payments. Those companies charge high fees ($500-$900) because they assume that if you have reached them you probably do not have a clue how to do it yourself.

Credit repair software– Many choose to repair their credit records with home use personal software. Those software cost about $100 and they manage the whole process, with video training and all the needed letters to all the bureaus sent and filled with a click of a mouse. The software can help people raise the score! If you raise your score with the software by even 50-80 points you can save $400 per month in better mortgage rates and credit debts interests. See  Credit Repair University Program.

DIY Credit Repair– Some people prefer to do all the process by themselves and stand up to those giants bureaus and claim the repair they deserve. Even those who prefer to do it alone, usually get online guidance and guidelines as any mistake you do, may lower your score, or damage it even more than it may already be. There are some leading credit repair programs that will take the customer hand by hand through all the stages all the way till the raise of the score. Those programs cost about $50 or even less. See Credit Repair University Program.

So What Is Your Next Step?

Every week you are wasting money.. sending dozens of dollars to the rich credit companies, who relay on you to keep doing NOTHING.

If your score is below 700, you might want to do something about it – get this Credit Repair University’ which will save you money and time.

Yes, you might need to invest a small sum to get a grip of things.. But if you think education is expensive.. try ignorance..

You are probably paying thousands of dollars per year in fees and interests to credit companies which could be going straight to your pocket.

So do your math… and take action NOW.