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Do You Know The Score And What Does FICO Have To Do With It? By Joe Kahler

Your credit score is also commonly known as your FICO score. So what is your FICO score? FICO (Fair Isaac and Company Inc) is the credit rating that determines whether or not you get to finance that first car, purchase that first home or buy just about anything else you might want using credit. FICO scores are your credit rating. Most lenders base approval on them. You have three FICO scores, one for each credit bureau Equifax, TransUnion & Experion.

Whether you get a loan to buy a home depends on a computer-generated credit score that compares certain things about you. Things like how much money you earn, how long you've been using credit and whether you've made payments on time, determine your credit worthiness.

The five main criteria are:

1. Payment history - Your payment history on credit cards, retail accounts at stores, installment loans, and mortgages. (35% of total score ) 2. Amounts owed - What is important is how many accounts have balances and how much of the total credit line is being used on credit cards and other "revolving credit" accounts. (30% of total score.)

3. Length of credit history - Thats why parents should help children establish credit histories before they go out on their own. (15% of total score.)

4. New credit - Applying for too much new credit is one of the easiest ways for people to inadvertently harm their credit score. (10% of total score)

5. Types of credit - This takes into account your mix of installment loans, mortgages, retail accounts, credit cards and finance company accounts. (10% of total score)

The scores that the companies compile are sent to the credit reporting agencies as composite numbers. In addition to your salary and other factors mentioned above, here are some of the things that scoring agencies consider:

  • Your education level - It sounds arbitrary, but its true. A college-educated person is given more points than a high school graduate, for example.

  • The number of years youve lived in a single location - If youve moved around a lot, you lose precious points. If youve moved because of a better-paying job, you can recoup some of those points if your salary has increased, for example.

  • The number of years youve worked for a single employer - Scoring agencies like people who are stable. That is why they assign more points to people who have lived in a particular place for several years or who have worked for a single employer for many years.

  • Are you a homeowner?- If you are, you get additional points. Renters are considered more transient and less reliable to repay their loans.
  • If all of this sounds arbitrary or unfair, remember that scoring systems have allowed department stores and other lending agencies to offer those on-the-spot credit approvals. You know the routine. You fill out some basic information on a card and five minutes later (if the computer is working properly), youre either approved or disapproved for a loan.

    Joe Kahler is recognized as an expert on helping young adults successfully transition from home to being out on their own. His latest work has recently been assembled in his book, Out On My Own... Now What? Tips and Insights So You Wont Be Left Hanging in the Real World!

    Joe received his undergraduate degree from Whittier College in Social Sciences and his Masters in Education from Arizona State University. His experience includes teaching, coaching, running numerous businesses, investing, selling insurance and real estate AND attending numerous personal, hard knocks training classes!


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