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Several companies keep track of your credit habits. Trans Union,
Experian, and Equifax. A model known as FICO, which stands for the
company that created it, usually determines your actual credit score
(see
Fair, Isaac and Co.
for more information). Your potential
creditors will likely use this score to evaluate your credit. They
are generally looking for a score of 620 or more as acceptable for
most purposes. A score of 680 or more can often reduce your interest
rate on larger purchases. The score that a lender will accept
depends on the type of loan. A 620 is usually acceptable for a
mortgage but would be considered risky for prime credit card
companies who generally like to see a 680 or higher.
For
consumer loans, a credit score below 550 is considered very weak
credit. The table below helps provide a reference guide for
credit scores. Please note, classification of credit scores
vary from lender to lender.
|
Credit Score |
Rating/Classification |
| 790
and over |
Platinum |
| 680
to 789 |
A |
| 640
to 679 |
B |
| 600
to 639 |
C |
| 550
to 599 |
D |
| 549
and below |
E |
Its difficult to say exactly how this score is deduced as Fair Isaac
does not reveal the details of their model. We do know that it is
largely based on the following factors.
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.
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