The FICO score is a three digit number that has incredible power in the financial number. It has the power to decline good interest rates and in some cases can affect employment.What’s in a number?The FICO score is made up of a proprietary formula from the Fair Isaac Corporation. This formula consists of several categories that are used to determine that number. Most of the score is determined by how faithful payments were made and your debt-to-income-ratio.
- Debts owed
This category relates to the amount of debt owed compared to available credit. This scoring model may also cause small ticks up and down based on major purchases in a brief period of time.
- Type of credit
Unsecured debt and secured debt have varying effects on FICO scoring. Unsecured debt such as a credit card will typically cause the biggest fluctuations in scoring. The reasons behind this is based on faith. Unsecured debt is based on the faith of the borrower, while secured debt has a form of collateral.
- Payment history
On-time or delinquent payments make up a significant portion of scoring. Severely late payments may take longer, but positive unsecured payment can mitigate this.
- Credit history length
Credit history is the amount of time the account has been open and is unrelated to payments.
- Recent credit
Recent credit applies to both actual recent accounts and hard pulls. A hard pull is when a credit application
FICO scoring and credit repair
Raising your FICO score is a quick step in the right direction to credit repair. FICO scores can move the quickest when debt is paid down due to the difference between available credit and debts owed. One example of the uniqueness of how FICO is scored is a history of positive payment history with a large account that hasn’t been paid off in a long time. Paying this old debt off can improve the DTI (debt-to-income) on the account.
Each of the big three bureaus have slightly different perspectives on credit scores. Consumers should check all three bureaus and make sure there are no radical differences between the three. The FICO score is a relatively simple number to decipher once consumers look at each category and determine where there needs to be improvement.
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