How Do You Get A Credit Score?

The consumer finance tool known as your FICO Score came from its namesake, The Fair Isaac Co., in response to a need for financial institutions to have a mathematical snapshot of consumer financial health. For sixty years it has helped American financial services companies to judge the credit worthiness of individual customers and whether or not to extend credit.

Credit scoring has been instrumental in facilitating purchases, improving the probabilities that lenders recoup their investments; it has also given customers the lifestyles that bring joy and happiness while boosting the performance of the economy as a whole.

FICO Scores By The Numbers

The credit bureaus score consumers based on the Fair Isaac formula and the information they have compiled from reporting lenders. This score, ranging between 300 and 850, might vary slightly between agencies because they have differences on file. Not all credit-reporting businesses give information to all three services. However, the information is not likely to deviate significantly from one service to another.

Factors in scoring: Payment history, the length of your credit history, the number and type of accounts, and how many new accounts you have. It is important to note that when a lender views your credit report it has an adverse impact on your score! Ironically, too many hard inquiries are a bad thing when you are seeking the best lending terms. So limit your applications to only the ones that will give you offers you plan to accept.

Actions That Raise Your Credit Score

Higher is better in credit score calculation. A low score is not the same as no-score where you cannot get credit, but instead, it will indicate the terms that lenders will offer you. If you have a low credit score banks and mortgage companies will offer you more expensive terms. When you qualify for better loan terms, you will save many thousands of dollars over the term of your home loan.

Keep making payments on time – Missed payments stand out on your credit report like enormous red flags, and this reflects directly on your credit score. The regular and consistent payments you make are critical to increasing your score, and these financially healthy habits will be more important as your credit history gets longer.

Avoid applying too often – Start new credit accounts and inquiries as sparingly as possible, too many new accounts or hard inquiries drastically reduce the average age of your accounts, which drags your credit score down.

Use the credit you have – If you start new accounts, it is a negative mark but if you utilize the lines that you have it will help to establish a history that shows how you behave over time. Although there are many ways to go wrong and abuse your credit, not having any credit history will prevent you from getting approved altogether.

Pay down debt – Reducing your debts from your highest levels of borrowing will demonstrate to finance companies that you will act responsibly with their capital.

Look at alternative lending packages – If you have the cash, consider prepaying more points for a lower rate and put down a smaller deposit, this will help to keep your interest rate down.