An important step to establishing good credit is understanding what exactly makes good credit, and how good credit is measured. A FICO score is an important metric that is used to determine your creditworthiness. Here we’ll cover what a FICO score is, what factors go into your FICO score, and why maintaining a good FICO score is important.

What is a FICO Score?

Sure, you know the very basics—that a FICO score is a number which somehow reflects how good or bad your credit is. A FICO score can range from 300 to 850, with a higher score reflecting better credit. But this description of a FICO score is superficial and doesn’t give you the whole picture.

FICO scores are the metric most widely used by lenders to decide how creditworthy you are. Lenders use these scores to decide if they will lend you money, as well as the terms of that lending. Whether applying for a credit card, mortgage, or car loan, your FICO score is likely to be considered by lenders. Although they are the most widely used scores by lenders, your FICO score is
only one particular way of calculating your credit score.

What Goes Into a FICO Score?

Your FICO score is a snapshot of your “creditworthiness.” Creditworthiness means the extent to which you are likely to repay the money that is lent to you. Lenders understandably want to lend to people with high creditworthiness, so that they don’t lose their money.

How can your FICO score, one single number, give lenders an idea of how likely you will be to repay a loan? Several factors go into the calculation of a FICO score, and each is weighted differently.

Payment History:  You know what your payment history is: it’s the record of how timely you have been with any credit card or loan payments you have had in the past. This factor is understandably given the most weight in the calculation of FICO scores, as the way you have acted in the past is a good sign of how you will act in the future.

Length of Payment History:  The longer you have been using credit responsibly, the better your FICO score will be. The overall length of your credit history and the average length of all your credit lines will both affect your FICO score.

Total Amount Owed: The total amount you owe on all your lines of credit is another large factor that goes into
calculating your FICO score. The type of credit versus the amount owed is also considered in this calculation.

Types of Credit:  The types of credit accounts you hold, such as student loans, credit cards, and personal loans, make up about 10% of your score.

New Credit:  Requests for new credit and the number of new accounts you have also factor into about 10% of your score.
http://www.accountingcertifications.org, Accounting Certifications.org has additional articles that can help you
understand your financial profile.

Why is a FICO Score Important?

Making Major Purchases

For many Americans, purchasing a home or getting a college degree is a very important life goal. The larger the purchase, the more important your credit score; lenders are especially wary of lending large amounts of money to people who have low scores and low creditworthiness. Perhaps you’re not entirely sure you want to own property or get that graduate degree right now, but you never know where you’ll be in the future. Having a good FICO score is necessary for qualifying for large loans.

Getting the Best Interest Rates

During times when lots of credit is available, you may be able to qualify for larger loans, even if your FICO score is relatively low. So what’s the problem? You’ll likely end up paying more money due to being offered a higher interest rate. In most cases, the closer your FICO score is to 850, the lower your interest rate will be. For large purchases, this difference in interest rates can equate to large sums of money. For example, a higher mortgage rate can equate to tens of thousands of dollars on the final cost of a home or property loan.

Avoid Hassles

Your FICO score isn’t just used by lenders. There are other individuals that may pull your credit score if they want to determine your payment history or financial responsibility. For example, nearly all landlords request a credit report when you apply to lease or rent a property. Understandably, landlords are not eager to rent property to individuals who may not be able to keep the terms of the rental agreement. Insurance companies may pull your credit report to determine what sort of an insurance user you will be; credit reports have been shown to be good predictors of how likely you will be to file claims to your insurance company, and what type of a customer you will be. If you’re like most people, you require both a place to live and insurance of some type; thus, a credit score can have a real impact on your life, even if you don’t anticipate borrowing money in the near future.

Improving Your FICO Score

After learning more about your FICO score, you may be itching to change your behavior to bring your score up. How can you do this? By practicing responsible financial habits and by being strategic about your credit accounts, http://www.personalfinanceblogs.net, Personal Finance Blogs have more information on responsible money practices. If you’ve
had late payments in the past, start making current payments and stay that way. It’s better for your FICO score to keep low balances on credit cards and other types of revolving credit. Opening new accounts can temporarily lower your FICO
score, so be judicious about opening new accounts. If you haven’t been using credit for that long or if you have only used one type of credit, opening many new accounts at once can also negatively impact your score. Remember that repairing
a low FICO score can take time, but that a good score can be damaged quickly.

Sources:  http://pfp.missouri.edu/financial/documents/MYFICO.pdf”>Fair Isaac, http://med.brown.edu/download/financialaid/workshop/PositiveCreditHistory.

Many people think that their credit score is only important when they want to buy something. It is definitely important then, but it is also more important than you may realize when you are looking for a job – or trying to keep one.

Background screening includes your credit score
Almost every large corporation and Fortune 500 company requires background checks on applicants before they hire them. When you sign the application, you give them permission to check your records, and this almost always includes your credit rating. If you have low numbers, many businesses interpret this to mean that you are unreliable, irresponsible, and not the type of person who they want in their organization. It is not discriminatory to refuse to hire on these grounds because a person’s score determines whether or not they’re hired, not their race, gender, or religion.

Those responsible for money are scrutinized the most
This is especially true if you would handle money in a new position. Many small businesses are also beginning to do background screening on applicants before they hire for a position. If you have bad credit, you’re judged to not be able to handle your own finances, so most businesses do not want you in charge of theirs. Higher management positions typically require very good or excellent ratings for an applicant to be considered for a position. Sometimes, a low rating keeps a person from getting a low level job as well, such as in customer service work or office support.

Some employers randomly do background checks on current employees
Accountability is the rage within the business world, and this often includes screening current employees. Background checks frequently involve drug testing, checking public records, and checking scores. Businesses are certainly able to do this because they already have your social security number and address. As long as they make it clear that this is their company policy, there is nothing illegal about it. You probably signed a paper at some time, such as when you were first hired, giving them permission to do this anyway.

A credit score can affect promotions
Businesses sometimes see credit scores as signs of success in an employee’s personal life. When it is time to promote, if one person has a high score and another has a low score or a bankruptcy, they will almost always choose the person with the high numbers. Although a person cannot legally be fired for having a low score or for filing bankruptcy, there are ways around this law. A person can often be fired for any reason because they are considered to be employed “at will.” This means that if an employer doesn’t like something about them or what they do while they are at work, it is easy enough to find a reason to fire the person. It will never be admitted that the reason is the poor score, but this could very well be the reason for dismissal.

The higher your credit score, the better interest rate you will get on car loans, mortgages, and credit cards. Over a lifetime, you will pay far less for items when you have a very good score. It is definitely worthwhile to do whatever you can to boost it. Here are five things that usually make a big difference.
1. Pay your car payment, mortgage, charge cards, student loans, and other loans that report to the major credit bureaus on time each month, even if you eat hot dogs and beans every night for dinner for the next month. Even being late one time on these loans can lower your numbers.

2. When possible, keep your charge card balances at zero. Charge one or two small items, and pay the balance at the end of the month. This will be a big boost to your numbers after you do this for about six months or a year.

3. Stay within the limit on your accounts, and don’t charge every cent available to you. If you don’t know the maximum allowable amount that you can charge, call the company to find out. You may already be over your limit and not realize it. If you stay within your limit, it brings your credit score up. This could affect whether or not you get the apartment that you want to rent since many property managers and landlords check an applicant’s scores before renting to anyone.

4. Keep your charge cards active by using them occasionally. If you close down an account, it can affect your numbers negatively. Use a card that you haven’t handed over to the store clerk in a while. It might be in the back of your wallet, and maybe you even forgot about it. When you use accounts that have been open for the longest time, this is good for your credit numbers.

5. If you lose your job or have an emergency situation, contact your creditors to let them know. They might work with you by allowing you to postpone a payment without notifying reporting agencies that you are 30 days late on your payment. Again, they may not – but it’s worth a try because they may be willing to work with you. Of course, if you do this more than once, they probably aren’t going to believe you.

These five ways to boost your credit score can make a huge difference in the numbers. You can raise it by a hundred points or more if it was low to begin with.

There are many reasons to check your credit scores; occasional monitoring, credit repair preparation, or in advance of making loan application. Most people that decide to check their credit scores on the web end up at one of the three credit bureau websites. You can request a free credit report from the only authorized source at www.annualcreditreport.com.

FICO is the only Score that Counts

Lenders use a credit scoring formula developed by Fair Isaac Corp called the FICO score. The three major credit bureaus provide these FICO scores to lenders, either directly, or through credit resellers. But if you or I purchase our scores from the credit bureaus we get something altogether different; we get the credit bureau’s proprietary scores, which can be radically different from the FICO scores lenders see.

The credit bureaus make millions by selling these numbers which consumers erroneously believe are the real deal. This is a sadly deceptive business, and completely indefensible. There is only one place where you can get genuine FICO scores, MyFICO.com, the Fair Isaac website. No one else sells the genuine scores to consumers.

The Power of Balance Reduction

Recent FICO score modifications has put an increased emphasis on credit card balances. The importance of this cannot be overstated. Way too many people have been blindsided by precipitous drops in their scores due to high card balances. As crazy as it seems you can now have an immaculate payment history and have a crappy credit score. That’s right, even a full decade of perfect credit will not offset the terrible effect of a maxed out balance. Here’s the deal.

FICO measures the relationship between your balance and your limit. Specifically there are five trigger points to be aware of: 20, 40, 60, 80, and 100 percent usage. The lower the better, and if you go over the 100 percent mark you can expect a drop of 100 points in your score. Ouch. Anyway, the good news is that when you pay your balances down, your score will go up. If you want real score improvement, get your balances under the 20 percent mark and watch the credit repair magic happen. You’ll love it.

Authorized User Accounts

Have your mom call one of her credit card companies and ask them to add you to her account as an authorized user. She should tell them that she wants you to have a card in case of emergencies. About 60 days later the account will show up on your credit report and the entire credit history of the card will be included in the calculation of your credit score. You do not have to use the card; in fact you can give it back to your mom when you get it.

This little credit repair trick can really boost your credit scores quickly. Just make sure that the history on the card is excellent. There would be no point in adding yourself to a bad card. And, as a little caveat, don’t even think about purchasing an authorized card status online. The latest release of the FICO formula includes a block on purchased card memberships, so it would be a waste of money.

Consult a Credit Repair Expert

If you want more powerful credit repair tips that can really pump up your scores pick up the phone and call a professional. A credit repair professional will evaluate your three credit reports and customize a plan just for you. Credit score optimization can pay amazing dividends and is worth every bit of effort you put into getting it done right. Click on the link.

This mortgage crisis of 2007 – 2008 was one of the hottest news topics of that period, and it was largely fueled by the subprime mortgage industry.

By way of definition, subprime lending is a way to grant home loans to borrowers with bad credit. A “subprime borrower” then is a person with bad credit who does not qualify for the top tier loan rates offered by the mortgage lender. In other words, a subprime borrower is a person who has had trouble paying back loans and credit lines in the past, and therefore represents a higher risk for the lender.

As a result of the subprime mortgage crisis, tougher regulations have been imposed on the lending industry as a whole. This in turn means that lenders will place greater emphasis on credit scores when making loans, and also that fewer lenders will make loans to subprime borrowers. In fact, some of the largest subprime lenders of the 1990′s are disappearing as I write this guide.

Here’s what this means to you, as a home buyer:

Good credit has always been important when buying a home and applying for a mortgage loan. But these days it’s even more important to have good credit, because the number of options for “bad credit home buying” is diminishing.

In a certain sense, you have direct control over your credit score. Sure, it’s computer by somebody else, but it’s computer based on your actions. So by taking smarter financial actions, you can in turn improve your credit score.

Here are some things you can do to achieve a better credit score:

1.   Pay your bills on time. This is one of the best things you can do to improve your credit, because it’s given the most weight in the FICO scoring
model. Paying your bills on time (credit cards, auto loans, etc.) will raise your credit score faster than any other single action. Of course, the
Opposite is true as well.

2.   Keep credit card balances low. Do your best to reduce your debt, starting with any credit cards you have. This is the second most important
factor that contributes to your FICO credit score. So now you have two marching orders — pay bills on time, and pay down your debt as much
as possible.

3.   Keep your debt-to-income ratio at 20% or lower. In other words, your overall debt should not total more than 20% of your net monthly income.
If it does, focus on paying down the debt as quickly as possible.

4.   Limit the number of loans / lines of credit that you apply for. Applying for credit too often can send the message that you cannot properly
manager your finances. Use credit and sparingly … only when you need it.

Most of the items on this list could be summarized as being financially responsible and managing debt wisely. Put these things in practice today,       and your credit score will soon reflect your efforts!

Ask a dozen credit experts what makes a good credit score, and you’re likely to get a dozen different responses / ranges. So for this tutorial, we have taken ten articles on this subject from ten reputable websites and averaged them out. Based on this “scientific” analysis, here is what the experts have to say on the subject of good credit scores…

• 750 or above — If your credit score falls into the range, you should consider yourself lucky (or perhaps just financially responsible). This range is considered to be an excellent score by most mortgage lenders. As a result, you will likely have a much easier time qualifying for a mortgage and getting a good interest rate on the loan.

• 700 to 750 — Credit scores within this range are somewhere between very good and excellent. With many mortgage lenders, there seems to be an “invisible line” at the 700 mark, with regard to what is considered excellent credit. So 700 and up is a great “neighborhood” to be in.

• 650 to 700 — In general, a credit score that falls within this range is considered to be good or even very good, depending on the lender.

• 600 to 650 — Now we are closing in on the most common definition of “good credit” among most lenders. A score in this range is not “very good” or “excellent,” but then again it’s not sub-standard or bad either. So most lenders will view a person in this range as a reasonably qualified borrower. You won’t necessarily get the best rates with a score in this range, but it’s still considered a good credit score so approval should be likely.

• Below 600 — If your credit score falls below the 600 range, a higher percentage of lenders will consider you to be a credit risk. You could still find a willing lender at this point, but you’ll pay higher interest rates than a person with a good or excellent credit score. And this obviously translates to a larger payment each month.

What’s important to note here is that people at the bottom of the scale (with scores in 400′s or 500′s) will have more trouble getting a loan. As
a result of the financial crisis, lenders have had to tighten their standards and are therefore less likely to make loans to borrowers with bad
credit (subprime borrowers).

Of course, if you have a bad credit score, you shouldn’t despair. There are plenty of things you can do to improve your credit, and that’s exactly what    we will talk about next.

When your credit score is good you will have a much easier time qualifying for a loan. But when your score is bad, the opposite is true and you will have a harder time qualifying for a loan. You will likely pay a higher interest rate when you do get qualified.

But what is a good credit score and more importantly how can you achieve one?

Credit scores range from 300 to 850 and a higher score is definitely better. The higher your credit score, the easier time you will have getting qualified for a loan. You will also generally pay a lower interest rate on your loan when your credit score is high, and this equates to genuine (and often significant) savings over the life of your loan!

With so much emphasis on your credit score, it is important to understand how the score is calculated. Commonly referred to as FICO (Fair Issac CO) Score, your credit score is a summation of complex algorithms used to determine your exact score. While the formulas are protected, we are given approximate percentages that help us understand what goes into your score.

35% PAYMENT HISTORY

The largest factor is your basic payment history. This is the number of unpaid bills that you have, any bills sent to collection, bankruptcies, etc. The items that are most recent have the most impact.

30% OUTSTANDING DEBT

Are your credit cards maxed out? High balances, or balances close to your credit limit can negatively affect your score. Keep balances below 35% of your credit limit.

15% LENGTH OF CREDIT HISTORY

How long have your accounts been open? The longer the account has been open, the better.

10% RECENT INQUIRIES

Every time you apply for credit of any kind, you create an inquiry on your credit report. Multiple inquiries negatively affect your score.

10% NEW CREDIT

How many current/new loans you have and the value of these loans. Three major bureaus dominate the market for supplying American lenders with credit scores. When you apply for credit, it does not come directly from FICO; instead each bureau has its own version with its own name.

• Equifax is called Beacon
• TransUnion is Empirica
• Experian is Experian/Fair Issac

Credit is an essential part of life these days. It is almost impossible to make major purchases such as buying a car, major appliance or house without it. Individuals and organizations with the best credit ratings have more financing opportunities available to them and are offered lower interest rates than those with poor credit. That is why it’s vital to build and maintain good credit.

How Strong Is Your Credit Score?
Your credit score is a three digit number that is a synthesis of all your credit data. Several factors are taken into account and each one is assigned a weight to determine an overall credit score. The most important factor is payment history, which accounts for about 35% of a credit score. Other factors and their weights include amounts owed on credit cards and loans (30%), length of credit history (15%), types of credit (10%), and new credit accounts and inquiries (10%).

Most credit scores range from 350 to 850. A score above 700 is considered very strong. Individuals with credit scores over 700 will have access to the best financing opportunities at the lowest interest rates. A score below 600 is considered risky for a lender. These individuals and organizations will have less lending options available to them and will pay higher interest rates.

The difference between having a strong credit score and a weak one can save you hundreds, or even thousands, of dollars in interest charges on a major purchase such as a house or car. That is why it’s very important to build a good credit rating and to maintain and monitor your credit score on a consistent basis.

The best way to monitor your credit score is to order your credit report along with the credit score from one or more of three major credit bureaus, which are Experian, Equifax and TransUnion. Once you have determined what your current credit score is, you can work on strengthening it. The most important factor in having a good credit rating is paying all your bills on time. It is also vital to keep your credit balances low on your credit cards and available lines of credit and to have a mixture of credit that includes both revolving credit (i.e. credit card) and installment loans (i.e. car loan). The strength of your credit score is determined by how responsible you are with your lines of credit and your ability to pay your bills on time.