subject: Taking A Closer Look At Your Credit Score [print this page] Why do you need to have a copy of your credit report? Reading it is not enough though. The most important thing to do is carefully understanding every detail in your credit report and knowing how it affects your credit status and score. To help you with this, here is an article that will focus on the FICO method of credit scoring.
Today, the three major credit bureaus and other reporting agencies as well as creditors are now making use of the FICO system in calculating credit scores. However, each credit reporting agency does its own variation of the FICO scoring method. Each credit bureau does its own independent reporting. If you compare each credit report that you obtain from each bureau, you may find that they are not exactly the same. You may have different credit score from each one. This is why it is recommended to get a copy from all the three credit bureaus for to be able to see the accuracy of each one.
Although, there may be some variations in how credit bureaus do their report, the method of calculation is based on the same factors. With the FICO method, your total credit rating is calculated based on the length of your credit history, the types of your accounts, the timeliness of your payments, your outstanding balances and your credit limit usage. Based on this scoring system, each of these factors are given a certain percentage to add up your total credit score.
The FICO scoring system ranges from a low of 300 to a high of 850. Different creditors have varying standards in determining the acceptable credit ratings. Generally, most creditors consider a score that falls below 620 as a high risk borrower. A person with a score between 620 to 660 can be granted an approval while a score between 660 to 720 is considered as good. A credit rating of 720 and above is considered as excellent which means you will have greater chances of getting approval. Along with approving the application, creditors are willing to give better rates and more privileges for clients with a high credit score.
Lenders often based their judgment on how high or low your FICO score is. This is because a high credit points shows that you are a responsible borrower and payer and that you take your payment obligations seriously. If you have any plans of applying for a loan or a new credit card, it would best to check on your credit report first and see if your credit score is good enough to win you an approval. This is better than submitting your application and getting declined since a rejection can only worsen your credit score further.
If you find that your FICO score does not live up to the standards of your prospective lender, you can still work on improving your rating by paying off your debts and keeping up with your current payments. Give yourself at least six months to be able to see some progress. After this period, you are more prepared to submit an application again without the fear of rejection from lenders and loan companies.
