Credit Scores report explained

November 13, 2009

The credit report gives information on all the debt instruments in your portfolio. More or less, it gives a pulse indicating what is happening to your financial deals. The FICO score takes all the information in this report and gives a single value by which one can judge their borrowing history. Designed by the Californian firm, Fair Isaac Co. it distills the vast amount of information and indices in your credit report using a system. Here, a formula determines a number that is also viewed as an index of your creditworthiness. Lenders are allowed an accurate prediction of the amount of risk they are likely to take on once they close the deal on your loan. Streamlining the process of underwriting, the lenders are given a cue on the type of review they have to do on your credit files.


The score skirts the range of 300 and 900. The higher score indicates a higher probability of giving you that loan. Most scores will however fall in between 600 and 700. Characteristics for the score’s determination range from past delinquency to the age of the credit file.

Five of these are however considered of most importance. The period of delayed payment in the past can be projected into your future applications for loan resources. If you faced difficulty in paying back your loans in the past, it is likely that the same will be the case with other credit applications. The nature of your credit use is also a reason for the lender to review your background. Maxing out on your credit card loan for instance puts you at a disadvantage when applying for a mortgage or auto loan. Limiting the number of times you initiate a credit request lets you access future credit lines faster. The FICO system is does not favor frequent requests for credit card loans, for instance.


If you are capable of holding a specific credit line for long then your likelihood of accessing other credit increases. The lender assumes that if you’ve had certain types of credit for long then you pose less risk.

With a combination of different debt instruments in your portfolio, the lender sums up that you have free funds to access. Therefore you are unlikely to defect on your loan once it is granted. Otherwise, for the person with a secured credit card, it is unlikely that the lender will shoulder the amount of risks. However, with each loan you seek, different factors are used to determine your qualification.


Checking up on your credit score frequently will let you have sufficient time for improving your creditworthiness. Better terms will therefore be accessible once you start negotiating your loan. The single biggest transaction one can make on their portfolio is the mortgage. This may however be closed out to you if the only time you think on getting your credit score is when you need a loan. A change done 3 to 6 months before engaging a lender gives you a better FICO score.

Tags: , , , ,

Written by Uncle Sam · Filed Under Mortgage and Loan 

Comments

Got something to say?