Get Your FICO Scores Explained

Having your FICO scores explained means that you can understand which factors determine it. This means that you are now able to grasp how your actions will affect your credit score results. It isn't quite as obvious as you might think.

FICO Scores Explained

Most people are surprised to discover that their credit score results aren't entirely made up of their repayment history. They also consist of the amount owed, length of the relationship with a creditor, new credit arrangements and the types of credit used.

Repayment History

Not surprisingly, the way you handle the repayments on credit agreements will have the greatest impact on your score. Any missed and late payments will be registered with credit reference agencies, including Experian, Equifax and TransUnion. This is only the case for payments that fall outside any grace period.

The severity of a breach determines how much your score falls by. The most severe breaches include bankruptcy (especially chapter 7), delinquent accounts, mortgage foreclosure and entering debt relief programs.

Conversely, those who have an excellent repayment history and accounts showing 'paid as agreed' will score well in this area. If you have an adverse credit history, making timely repayments now and in the future will help to improve matters over the coming months.

New Credit Arrangements

New applications for credit almost always involve the lender performing a search with credit reference agencies. Exceptions include Payday and pawnbroker loans. Whilst a search isn't an issue, it may become problematic if you make too many applications in a relatively short space of time. Each search can be seen by other creditors; multiple applications can set off alarm bells with respect to the debtor defaulting.

The Amount Owed

A major consideration is your income-to-debt ratio. If your level of debt is high relative to the amount you earn, the greater the chance of a default taking place. This is why entering a debt relief program, such as a debt settlement program, can improve this aspect of your score.

Try not to max out any credit cards as this will be construed negatively. When your FICO scores explained for the first time, it can be a surprise to discover that your credit score result will be better if your debt is spread across several credit cards rather than just one.

Type of Credit

The proportion of unsecured and secured credit will be taken into account when determining your credit score results. This is because it is easier for a consumer to clear unsecured debt, thus increasing the chance of default. Secured debt default is far less probable.

Length of Credit History

The length of time an account has been satisfactorily maintained (or otherwise) will also have some bearing on your score. This provides an opportunity to prove that you can manage a long-term relationship with a creditor.

Having FICO scores explained will help you to manage your credit agreements more efficiently in the future. It will also help you to decide how to improve your credit score rating if you do have an adverse credit history.

Sources

myfico.com

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.

Updated: 28 March 2011