FICO credit score

 

You all know what a FICO score is. It is a 3 digit number on your credit report that helps the lenders determine your ability to pay back a loan. The range of this 3 digit number is 300-850 and the number 300 showcase an extremely high credit risk customer whereas the number 850 showcase an extremely low-risk customer. So, how is this score calculated?

Calculation of FICO score

On your credit report, there are various types of details. Many sources offer these details and other kinds of information that reflect on your credit report. There may be patterns of your payments, history of payments you have made, missed payments, comments, and many other things. These details, patterns, comments, etc. on the report are analyzed. A computer algorithm is also used for evaluating the different types of information on your credit file and hence the FICO score is given.

This FICO sore allows the lenders to assess your ability to make the payments. They will see how risky is it to lend you the money. Along with the FICO score, the lender also gets the key score factors which are the most important factors that affect the score. The top two factors are provided by Credit Strong presently. According to the research done by the FICO, people who have a high score do the following:

  • They make all the payments regularly every month
  • They only apply for new credit only if they need it
  • They have a long and reliable credit history
  • Their credit card balances are low

A detailed breakdown of each category that makes a FICO score is given below, but just before you review it, here are few things that you must keep in mind:

  • Every category is considered by FICO sores and not just one or a few of them
  • The importance of each factor in the report depends directly on the information in the complete credit report
  • Only credit-related information is considered by FICO scores on the report
  • Both negative and positive information on the credit report is considered by FICO scores

Let’s talk about these factors in detail:

We will discuss each factor, their weightage, meaning, and how Credit Strong considers each factor when they make a credit decision.

  • Payment History: The record of each payment that is either late or made on time or if you have got an extension of credit on any missed payment.

This factor holds a weightage of 35% in the report.

If you make payments on time, Credit Strong allows you to display a responsible pattern of making on-time repayments. Lenders look at these patterns when they decide to give you a credit or not. Making payments on time showcases your responsible behavior, but missed or late payments negatively impact your credit report.

  • Amounts Outstanding: Amount outstanding is the amount that you owe to each creditor individually and in total. It also states the amount that you have utilized on the credit cards.

This factor holds a weightage of 15% on the report.

When you start your account with Credit Strong, there will be a slight dip in your credit score because the amount outstanding will increase. Once you start making your monthly payments regularly the amount outstanding will go down and show a positive impact on your credit report.

  • Credit History Duration: The duration or age of every trade line on the report will be showcased in totality as well as individually.

This factor holds a weightage of 15%

If the term of your Credit Strong account is long enough, it will show a good impact on your credit profile. If it is for 12 or 24 months or more for example, then the impact will be better.

  • Credit Mix: This means the type of credits you have used: a fixed loan amount; credit cards or revolving lines of credit and installment.

This factor holds a weightage of 10% on the report.

An installment loan will be included in your Credit Strong account and revolving lines of credit, as well as the installment loans, must be maintained properly on the credit report.

  • New Credit: New or fresh credit is the new account opening and any kind of hard recent inquiries made by the lenders on your credit report.

This factor holds a weightage of 10% on the report.

A hard credit inquiry is not performed by the Credit Strong and the new account will show on the credit report like a fresh installment loan. If you are making payments on time then adding a new loan will not affect your credit profile, but if you are not making payments on time then it can harm your credit profile.

 

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