You really need to understand how credit scores are calculated if you want to improve your credit score,
The important thing to know is that there are several different types of credit scores. The Fair Isaac Corp. score (or FICO score), is the most widely accepted credit score. With over 90% of the largest U.S. banks using the FICO score to determine your creditworthiness, it is the closest thing to a standard for measuring a person’s ability to manage debt.
As a result, it is important to do everything you can to protect your FICO score, as a lower score can cost you thousands of dollars in interest payments on a loan.
How are Credit Scores Calculated?
While FICO does not disclose how they actually compute the credit score, it really is not much of a secret. The FICO score itself is calculated by using a combination of data that appears on your credit report. This includes approximately:
* 35 percent – An individual’s history of making credit payments on time
* 30 percent – The total debt to available credit ratio
* 15 percent – The length of time credit lines have been open
* 10 percent – The frequency with which someone applies for new credit
* 10 percent – Other factors such as the types of credit lines
In 2008, FICO made some modifications to the way they measure an individual’s credit score. The new system not only shows the how likely they are able to pay back debts, but it gives some insight as to how well they also manage debt in general.
One of the biggest improvements people will see is that in the past, one missed credit card payment could severely damage your credit score if it were to be reported by the lender. The 2008 FICO score is more lenient, in that it will be mostly forgiving to one mistake on an otherwise flawless credit report.
Another differing is that 2008 FICO credit score calculates the ability to manage multiple types of debt. For instance, FICO will reward people who have both revolving debt (credit card) and installment loans (auto and home loans). A person who can effectively manage many types of loans is considered more credit worthy.
Now that you know some of the ways credit scores are calculated, you can take advantage of some of the tricks to quickly increase your credit score.
Want to boost your credit quickly? Learn more by visiting the Fico Formula at: www.ficoformula.com
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