Bill McCord's Blog

Not just a Mortgage Issue

 Most people know that your Credit Score (FICO) has a significant effect on whether you can get a Mortgage.

What is not generally known is that FICO is increasingly being used by Employers, Insurance Companies,

Utility Companies, Apartment Complexes and a growing list of other organization which provide services for regular payments.

These and many other groups consider it a good indicator of general reliability and whether bills will be paid on time.

FICO scores measure the risk that an individual will default by evaluating their history of credit management. The exact formulas used are top secret but FICO has given the following components and the approximate importance of each:

35%- Payment History. Late payment bills such as Mortgage, Credit Cards, Car loans etc will lower a person’s FICO score to drop. Paying bill as agreed over time will improve the score.

30% – Credit Utilization. The ratio of current revolving debt (Credit Card and Charge Account balances) to the total available credit (Credit Limits). Consumers can improve their FICO scores by paying off debt and reducing balances to less than 50% of the available credit. Closing existing revolving charge accounts can have a negative effect on this ratio and lower your score. Before closing accounts be sure to do some more research, or get qualified advice.

15% – Length of Credit History. Time improves FICO scores without any action other than paying all bills on time.

10% – Types of Credit Used. FICO scores are improved by having a record of good history of managing multiple types of credit (Installment, Revolving, Consumer finance etc).

10% – Recent Credit Applications. Multiple requests to obtain new credit over a short period of time can hurt an individual’s FICO score. However, individuals shopping for the best rate for a Mortgage or Auto Loan over a short period will not see any negative impact on a FICO score. All such enquiries will be counted as just one.

http://www.myfico.com/CreditEducation/