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The term FICO stands for Fair
Isaac Company. This company has developed a
mathematical formula to determine how high of a
risk you are as a credit applicant. The formula
is nothing short of complicated and confusing!
We have done extensive research on the scoring
model and have learned: The FICO score is
developed by taking millions of people, their
payment histories, balances, credit limits,
number of open accounts and the percentage that
don't pay, then coming up with several different
averages to justify credit worthiness.
Unfortunately, your score really isn't your
score. It's a score based on the performance of
millions of people. The score consists of up to
300 different characteristics which are then
boiled down to 10 different score cards. Each
score card is a determining factor in being
approved for credit.
We understand the 10-card scoring system as well
as the 300 encoded characteristics that are used
to develop the concluding model. Here is a
percentage breakdown of some factors the formula
takes into consideration:
Payment history (35%).
The largest factor determined on your FICO score
is your basic payment history. The number of
unpaid bills you have, any bills sent to
collection, bankruptcies etc... The more recent
the problem, the lower your score. In fact, even
something as significant as a 30 day late
payment can have a tremendous negative impact on
your score if it occurred within the last few
months.
Outstanding Debt (30%).
Are your cards maxed out? High balances or more
precisely, balances that are close to your
credit limit can negatively effect your score.
Keep your balances below 50% of your limit or
pay the cards off altogether (if possible). If
you have to choose between paying $1000 on three
cards or paying off one card with a $3000
balance, pay off the one card.
Length of your credit history (15%).
How long have your accounts been open? The
longer, the better.
Recent inquiries (10%).
Every time you apply for credit of any kind, you
create an inquiry on your credit report. Lots of
Inquiries negatively affect your score.
Inquiries within the last six months are
especially damaging.
Types of credit in use (10%).
How many and how much? Having loans from finance
companies (Beneficial Finance, American General,
etc.) can detract from your score.
As you can see, raising your credit score can be
more complex than disputing the accuracy,
validity, and timeliness of a negative item on
your credit report. Remember that removing
inaccurate and unverifiable information from
your report will increase your scores. But in
order for you to benefit the most from your
score, you must take a look at your credit
situation as a whole. |
