In todays world of credit the difference between having a good life and just living is a number. What number am I referring to you ask? A FICO score. In other words a credit rating. Or as they put it, your credit risk level. Do you know your FICO score? Most people don't. It is a number based on your credit history. These numbers range from 300-850, higher is better and most lenders base approval on them. Anything over 700 means you have excellent credit and you can get whatever loan you want with lower interest rates and good terms. While a number lower than 500 means your in some serious need of help. Anything in between means you can most likely get credit but on the financial institutions terms.
You may have an excellent job, gone to a good school but if your credit shows that you don't pay your bills and that you have alot of dept you'll have a horrible time trying to get any kind of credit, be it a mortgage, a car loan, a credit card, any kind of insurance, or any line of credit for that matter. Even employers are checking credit ratings to see if you're responsible or not. Looking to lease an appartment? Chances are the landlord will be pulling your credit report. Pretty intimidating when everything you work for is in a number.
Here's a look at how lenders rate you:
Credit score:
720 - 800 Superb! You get what you want
700 - 719 Wonderful! You get top rates & terms
680 - 699 Good! You get good rates & terms
660 - 679 All right. You pay higher costs & rates
640 - 659 Okay score if good income
620 - 639 Weak. You need good income & some money
600 - 619 Poor. Pay higher interest and higher loan costs
580 - 599 Almost impossible without a large down payment or a co-signer
Under 580 Work on fixing credit without delay
Now you're probably wondering who comes up with these numbers. The credit scoring method was created by Fair Isaac Corporation in the 1950's and is available from the three major credit bureau agencies- Equifax, Experian and Transunion. The three scores are usually a few points different from one another so creditors usually take the middle score as your base line. FICO scores are calculated based on your rating in five general categories:
1. Payment history
2. Amounts owed
3. Length of credit history
4. New credit
5. Types of credit used
If having good credit is important to you and it should be, then knowing your FICO score is essential. Check your credit score once every one to two years or five to six moths before you plan on applying for a loan. If it shows that you have excellent credit, good for you keep up the good work. If your report shows that you have a poor score start taking measures immediately.
The best ways to improve your FICO score is to always pay your bills on time. Have credit cards but manage them responsibly. Having credit cards and making timely payments will raise your FICO score. Lenders see People with no credit cards generally as being higher risk than people who manage credit cards responsibly.
If you haven't established any credit, here are a few things you can do.
1. Open a bank account. Don't overdraw your bank account
2. Apply for a credit card. Avoid missing or being late on payments. That is a sure way to damage your credit rating.
3. Consider a secured credit card.
4. Set a budget so you know what you can afford.
5. If declined ask why so that you may fix any errors on your report or work on the reason why they declined you.
Keep in mind that if you have had past credit problems FICO scores don't let that effect your score forever. Your scores will improve when recent good payment shows up on your credit report. It will show that you're trying to manage your credit.
