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How to Read a FICO Report
FICO stands for Fair, Isaac and Company, a California
firm founded in 1956 by Bill Fair and Earl Isaac. They
created a unique credit scoring system based on the FICO
rating system. This rating system include several
parameters from your credit file including length of
credit history, number of open accounts, loans,
mortgages, and public records that is formulated to
produce a 3-digit score between 300 and 950.
If your credit score is above 680, you are considered a
“prime” or a low risk in terms of someone who wants
to rent or lease to you. If your score is below 680, you
are “sub-prime” and fall in the middle category in
terms of risk of renting/leasing. Anything below a 560
is considered a “shafted’ score and this person is
not someone who is a good credit risk.
A prime score means you are a good risk. A sub-prime
score doesn’t mean you shouldn’t get a rental/lease,
but you may be required to go a step further in terms of
possibly providing a security deposit or first and last
month rent payment before move in. Shafted scores are
not good risks as tenants, but again doesn’t mean you
shouldn’t get a rental or lease. Further provisions
may be required from the landlord.
How a FICO Score is Calculated
1. Previous Credit Performance (Payment History) 35%
Payment History on accounts includes credit cards,
retail accounts (department store credit cards),
installment loans, finance company accounts and mortgage
loans.
Collection Items and public records include judgments,
bankruptcies, suits, liens, collection items and wage
attachments including specific details on late and
missed payments.
Negative information/late pays are determined using
three factors:
Recency – How long ago was the last delinquency. How
old is the late pay? A 30-day late payment made just a
month ago will affect your score much more than a 90-day
late payment from five years ago.
Severity – What level of delinquency was reached? How
late was the payment made? 30 days, 60 days, 90 days or
worse. Is the payment still outstanding?
Prevalence – How many credit obligations have been
delinquent? The amount of negative items as compared to
your total amount of available credit.
For instance, five accounts showing three late payments
is much worse than ten accounts showing four late
payments. One of the biggest sub-factors is how many
accounts show no late payments. A good track record on
most of your credit accounts will increase an over-all
FICO score substantially.
2. Current Level of Indebtedness (Amount Owed) 30%
How much is too much? Can the borrower pay you and still
afford to pay his other bills? Having available credit
actually helps your ratio of debt to available credit.
These are the types of questions that most borrowers
want to know and the answers are almost as important as
your previous credit history.
Total amount owed on all open accounts. Paying off your
credit cards in full every month does not mean that they
won’t show a balance on your report. Your total
balance on your last statement is generally the amount
that shows in your credit report.
Specific types of accounts, such as credit cards and
installment loans are scored differently and in
conjunction with the overall amount owed on all open
accounts. This also factors into your balance on each
specific type of account. For instance; you have a
credit card with a very small balance and no late pays.
Even though the balance is low, this still looks very
good as it shows that you are able to manage your credit
responsibly. How many accounts are open and how many
have balances? A large number of open accounts, even
with small balances, can indicate higher risk of
over-extension.
3. Amount of Time Credit Has Been In Use (Length of
Credit) 15%
Most often, the longer the credit history, the better
your score. However, this factor only makes up 15% of
your total score so even young people, students, or
others with short histories can stills core high overall
as long a s the other factors show good. 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.
The age of your oldest account and the average age of
all your accounts are taken into consideration. How long
it has been since you used certain accounts as well as
the mix of older and new trade lines.
4. Pursuit of New Credit (10%)
Credit is much more popular today. Consumers can now
shop for credit and find the best terms for their
situation. Every time someone runs a credit check on
you, it creates an inquiry. Are you searching for new
credit accounts or just rate shopping?
FICO handles this by treating a grouping 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).
Inquiries are typically seen as a request for credit and
thus are factored as if you are searching for credit.
Every time you fill out one of those credit card
applications to get a free hat, you are also getting a
free inquiry. Every time you fill out an online
application for a credit card, or other type of loan,
you are getting an inquiry. Too many inquiries look bad.
While there are no good inquiries, there are neutral
inquiries. These are most often known as Consumer
Initiated. A request for your credit reports shows as a
consumer inquiry. Inquiries created as a result of
periodic reviews are not supposed to be factored into
your credit score.
5. Types of Credit Experience (10%)
A healthy mix of different types of credit, installment
loans, retail accounts, credit cards, and mortgage. This
score is not normally a key factor in determining your
score but it can help a close score. It’s not a good
idea to try and open different types of accounts just to
try and make this factor better. It will likely reduce
your score in other areas. You should never open
accounts you don’t intend to use anyway. Your score
takes into account what type and how many accounts you
have, 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.
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How to Read a FICO Report
For more information on how to obtain a
FICO Score via phone, go to www.tele-rate.net or email
tele-rate
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