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What affects your credit score?

Guest post by: Joe Ferriolo

Article Overview: The FICO scoring model takes into account the information in a consumer’s credit report, with different kinds of information carrying differing weights. The FICO scoring model takes into account five categories of data:

What affects your credit score?

The FICO scoring model takes into account the information in a consumer's credit report, with different kinds of information carrying differing weights. The FICO scoring model takes into account five categories of data:

• 1. historical timeliness of bill payments, with most recent activity given the most emphasis (35% of the FICO score)
• 2. total outstanding debt and the total amount of credit the consumer has available, with consumers who consistently borrow to their credit limits having their scores reduced (30% of the FICO score)
• 3. length of credit history, with consumers with long credit histories with the same lenders having their scores increased (15% of the FICO score)
• 4. mix of credit, with consumers with a variety of revolving credit (such as credit cards) and installment credit (such as car loans) having their scores increased (10% of the FICO score)
• 5. New credit applications within the last year, with consumers who have higher numbers of credit applications generally having their scores reduced (10% of the FICO score).

Wise Man Finance

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Article Tags: bill payments, car loans, consumers, credit applications, credit cards, credit histories, credit history, credit report, different kinds, fico score, installment credit, lenders, li li, man finance, revolving credit, timeliness, weights, wise man



Related Forum Posts
Re: Credit Tips: Dos, Don'ts & a Quiz! - Don't forget to check your credit ratings and know where you stand. It can give you a good idea of where you can improve, unless you already have an impeccable score! Experts recommend checking your credit score at least once a year. Normally if someone else other than yourself checks your credit (ie. mortgage company, auto dealer, credit card application), which is called hard inquiries, it can lower your credit score. However when you check your own, it is considered soft inquiries and there is no impact on your overall ratings. You can easily review your score online at Equifax or TransUnion Canada.
Re: Securing Financing - We have a large number of clients that are experiencing a similar issue; that have a respectable credit score, but they can’t refinance their home or obtain new credit of any kind. It is simply because there debt to income ratio is too high. Having a high credit score with an upside down debt to income ratio is like having your dream car or truck with no engine. It’s appealing to look at and looks nice parked outside of your house for all your neighbors to see, but it can’t get you anywhere. Same principle applies to your credit, you might have a high credit score, but in all actuality it does nothing for you and only looks nice to a handful of people that might get to see it.
Re: home loan - Hello, It's hard to say whether or not a bank would be willing to give a loan with those credit scores. Typically in the past it would still be possible to get a loan, you would just end up with a higher interest rate. But with the turn the economy has taken and the extra restrictions lenders are imposing, I'd say your best chances of getting a loan in a year would be to continue working on increasing your credit score in the meantime. It's possibly to turn your credit score around in 6 months to a year, so I would suggest doing a search on "how to increase your credit score" and start putting some of the tips to use now. Best of luck to you! Stephanie Horne
rebuilding credit - In order to build credit you need to borrow and payback responsibly. If you have built-up many debts, re-financing to improve cash flow would be a great way to get control over your debts. It's hard to borrow when you have previous bad credit, so the best way to repair your credit score is with secured loans. For example you can pledge cash to the bank and get a credit card that is cash secured, use the credit card and make sure to make monthly minimum payments on time. In Canada you could take out an RRSP loan from a bank, which is secured by the RRSP investment. There is a tax benefit and it helps to improve your credit score.
Re: What Franchisors Want From Franchisees - Thanks for the follow up Russell. I found the following tip to be especially helpful: [quote="RussellWebb":2vqd3szf]Financing arrangements will vary - if you can show that you have 20% above all of your start-up costs, this would help. The more assets you own the better.[/quote:2vqd3szf] By the way, is there a way for someone to achieve a close to "1000" credit score? I've always paid off my Visa bill and car payments on time... but I bet my credit score is not even between 800-1000. I wonder what the secret is to 1000?


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