Credit Score / FICOYour credit score and/or FICO is what lenders look at when deciding if they will lend you money and how much money they will lend to you. FICO -- what is it and how is it determined? FICO - is an acronym for the creators of the FICO score, Fair Isaac Credit Organization, also known as Fair ISAAC & Company. They are a credit reporting agency and are the most widely used by lenders to determine if you are considered credit worthy or a credit risk when you apply for credit. Their scoring system is especially used in the home mortgage industry. How the FICO scoring system works - is somewhat a mystery as the formula they use is not disclosed. That being said -- there is some info we do know about it. The score runs, approximately from 300 to 850 A high score tells the lenders that you are considered credit worthy - hence a low score tells the lenders that you are a credit risk. What makes your credit score low? There are a few factors here - the first being if you filed for bankruptcy within the last 7 years. Your credit score will also go down if you have a history of late payments that have been reported, any liens or judgements against you, any defaulted loans. What is not widely known is -- if you have filled out many applications for credit - this can lower your credit score! These are known as "hard" credit inquires. Lenders see these "hard" credit inquires as a signal that you are agressively looking for money and will perceive that as a credit risk. What also can negatively affect your credit score is if you have high credit limits. If the total of your credit limits is much higher than your annual income - even though you are not using this credit - it can still lower your credit score. The reason for that is the lenders are leery that if you do utilize all this credit at your disposal you will not be able to pay it all back Who makes these credit reports? There are 3 major credit reporting agencies - they are; Experian, TransUnion and Equifax. Each of these 3 have their own databases -- which means you usually end up with a different credit score from each. Though usually the scores are very similar to each other. These 3 agencies have their own formula to determine your score -- but it is your FICO score which is still considered the most important to lenders. Get your credit report: It is a good idea to get your credit report from each of these 3 agencies at least once a year. This way you will be able to see how you are being scored and you will also be able to check that there aren't any mistakes on your report. You really don't want to apply for a home mortgage - get denied and then find out the reason you were denied was because there was some erroneous information on your credit report! You are entitled to a free credit report from each of these agencies once a year. You can go to each agency's website for information on how to receive your report. The free report does not give you your credit score. Each of the agencies charge a fee for a report that contains your score. Or -- there are several websites where you can pay 1 fee and access all 3 reports and scores. This is a summary Click to read more
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