There are other scores used by lenders and insurance companies (some of which are developed by FICO) such as Application and Behavior scores. These other scores take other information into account. Usually a lender will use a combination of your credit score with other factors when determining your risk. They all have the same objective, to determine the borrower’s potential risk.
Regardless of whether the score was generated by FICO or a system based on FICO parameters, they all yield an industry standard three-digit score. This score places the
borrower in one of three main categories (we named the third one ourselves).
Automobile Financing: If you are making payments on a car, you are probably paying between $2,000 and $5,000 more just for having bad credit. This added interest shows up every month in a higher payment.
Home Mortgage: Bad credit in auto financing can really hurt, but it is nothing compared to the cost of bad credit when a home is involved. A typical home can cost between $90,000 and $250,000 more in interest if you are buying the home with bad credit. $200,000 mortgage paid over 30 years As you can see, a low score can cost you hundreds of dollars per month. Which is why it is so important to obtain and maintain as high a score as possible.
Since your score is derived from your bureau data, it will change every time your reports change. However your score is calculated, it will always take into consideration many categories of information. No single piece of information or factor determines your score. As the information in your credit report changes, the importance of one or several factors may change in your FICO score.
Lenders look at many things when making a credit decision, including your income and the kind of credit you are applying for. However, your FICO score does not reflect these facts as it only evaluates the information retained by the credit reporting agency.
There are multiple factors which are used in credit scoring calculations that determine your overall credit score:
score much more than a 90-day late payment from five years ago.
What type of accounts you have, and how many, can make a big difference. The optimal ratio of installment versus revolving accounts depends on your profile and differs from person to person. One factor that seems to have significant influence is your percent of open installment loans. Too many can lower this portion of your score. Fair Isaac has changed some of its calculations to account for these new trends. Specifically, they treat a group of inquiries – which probably represents a search for the best rate on a single loan – as though it was a single inquiry (note: this only applies to auto or mortgage loan inquiries). For example, auto loan inquiries that were within 30 days of each other count as one inquiry.
As a reasonable measure you should avoid unnecessary inquiries. The system is designed to take into account rate shopping but things like applying for credit card offers will add inquiries to your file. If you are new to credit than there is little you can do to improve this part of your score. Open an account and be patient.
- Pay your bills on time. Sounds simple, but this is the best thing you can do to keep your score high. Delinquent payments and collections have a severe impact on a score.
- Keep your balances low on unsecured revolving debt like credit cards. High outstanding balances may affect a score negatively.
- Only apply for credit that you need. The amount of your unused credit is an important factor in calculating your score.
- Make sure the information in your credit report is correct. If it’s not, dispute it with the credit agencies and/or with the creditor directly.
- Removing negative items on your credit report has the biggest impact on your FICO score. [/fancy_list]
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