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Credit Ratings: By The NumbersYou've seen television ads and other forms of media talking about your FICO credit score. You know the number is important, but you really have no idea what it means. Here is a guide to understanding the numbers.
The FICO
Your credit score is known by banks and financial institutions as your FICO (Fair Isaac & Company) score. This score is usually placed on a scale of 300 to 900. The higher your score, the better your credit and the lower the interest rate will be when you get approved for a loan. Paperwork is also cut in half by those who have high credit ratings.
The Fair Isaac system, Fair Isaac created the FICO score, rates a person�s responsibility for taking out loans and paying them back. They base this scale on debt versus ability to pay and past history of paying bills on time. Four components are used to create the rating: credit history, personal information, public record, and the number of companies that have viewed a person�s credit report within a given time.
A credit score below 550 is considered to be horrible and a risky investment. Banks will not offer low rates to anyone with a bad credit rating. Some banks will refuse to offer money to a person with a low credit rating period.
The majority of people today fall in the 700 range. Being in the 700 range means that you are not high risk and that a bank can trust you to meet your financial obligations without issue.
Improving Your Credit Rating
To get a high credit rating, you should follow these rules:
- Pay bills on time or even early.
- Move only when necessary.
- Do not job hop when at all possible. Unfortunately, even lay-offs will affect your credit score.
- Cut up your credit cards.
- Pay off balances in large chunks.
- Do not max out any of your cards.
- Make sure you have some credit history in charging money and then paying it off. Having had no loans or credit cards is just as detrimental as having too many.
- Keep documentation any time you paid on time and the payment got lost in the mail or other reasons that may have prevented it from making it in on time. The same goes for charges that you did not make. You can change your score if you have proof.
- Check your credit report yearly and call the three reporting bureaus (Equifax, Trans Union, and Experian) if you find mistakes.
Your FICO Credit Score is the number that can make or break you financially. Keeping your score as high as possible is the key to successful mortgage, insurance, and banking application approvals.
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