- 1 Five Parts to Your FICO® Credit Scores
- 2 what is maximum fico score
- 3 What FICO Score Do I Need to Refinance My House?
- 4 FICO SBSS Score: Everything You Should Know
- 5 What Is A Credit Score?
Five Parts to Your FICO® Credit Scores
The Fair Isaac Credit Organization (FICO®) score is the industry standard for determining a consumer's credit rating. Lenders and others use the FICO® credit score standard to judge a person's credit record, using a complex algorithm that involves several factors.
There are five basic factors that a FICO® credit score calculator takes into account when measuring your credit history:
- Your past payment practices. FICO® evaluates how you've paid previous lenders, including those offering payment plans on an ongoing basis.
These criteria form the basis for a FICO® score, but all scores are determined on a case-by-case basis. So how can you deal with or improve a FICO® score? It's a long process that starts with knowing more about all of the details of your overall financial situation. Many people take years to micromanage their accounts, attempting to repair a damaged credit score, and many find that the best solution is preventative credit maintenance.
Learning to manage your credit starts with getting informed about your credit. That means utilizing services like credit monitoring to find out what may be changing in your credit history report; those changes can have an immediate effect on your credit score.
what is maximum fico score
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What is a FICO score and how is it related to a credit report?
You can think of it like this: the credit report is the raw data, and the FICO score is the quick-and-dirty number that sums up for creditors how risky you are. Your FICO score determines whether or not you're given a credit card or a loan, as well as what interest rate you'll pay, and can even influence a decision about whether someone will rent you an apartment or give you a cell phone.
A FICO score is calculated based on information from your credit report, specifically 1) your record of paying your bills on time, 2) the ratio of how much debt you have compared to the total of all your credit limits (i.e. how much of your credit you're currently using), 3) the length of your credit history, 4) how much you've been applying for new credit recently, and 5) your mix of credit cards and loans. (I used Suze Orman's The Money Book for the Young, Fabulous and Broke to refresh my memory on this list.)
A credit report lists every creditor you currently or recently have had a relationship with. (I think old creditors drop off 7 years after the account is closed.) For each credit card or loan, it lists the date you opened the account, your current balance, the starting balance or credit limit, and month-by-month whether your payment was on time, or late. There are three bureaus that collect this information, Equifax, Experian, and TransUnion.
You can obtain a free copy of each of your three credit reports once a year through annualcreditreport.com. Each of the bureaus will also offer to allow you to see your FICO score for an extra fee ($7.95 with my favorite, Equifax). I think it's well worth it to check it every 6 months or so.
One last note about FICO scores. the "FICO" part is important. The FICO score is the real one. I've seen lots of offers from credit cards, etc, offering a "free credit score." If they're not saying it's a FICO credit score, it's not, and it's pretty useless.
What FICO Score Do I Need to Refinance My House?
Overusing your credit cards can hurt your refinance.
When lenders decide whether to refinance your house, they typically look at three major factors. The first is the value of your house, usually as determined by an appraisal. The second is your ability to repay the loan, which they measure by calculating how much of your monthly gross income goes to paying debts (your debt-to-income ratio). The third factor is the likelihood that you'll make your payments. They measure this factor by looking at your credit history and frequently use your numeric FICO score as a shorthand way of doing this. While higher scores are helpful, you don't need perfect credit to refinance.
Produced by the Fair Isaac Corp., the FICO score is a three digit number that falls between 300 and 850 and expresses your strength as a borrower. The higher your score, the better your credit. As of October 2013, the score is made up of five factors. Generally, 35 percent of your score comes from how reliably you pay your bills while 30 percent is calculated based on how much you owe relative to your available credit. The length of time you've had credit makes up 15 percent of your score, and the remaining 20 percent is split between any new credit you've taken out and the type of credit you use. These breakdowns are approximate and may vary, though.
Generally, the least FICO-sensitive type of refinance comes when you use a government-insured loan such as a Federal Housing Administration or Department of Veterans Affairs mortgage. These mortgages frequently don't tier their rates based on your credit score, so you will get the same interest rate whether you have an 830, a 730 or a 630 score. For example, as of October 2013, the FHA's streamline refinance program, which lets you refinance FHA loans, doesn't even require a credit score check. This means that you can theoretically qualify for a refi with any score. In practice, though, the private lender that originates your loan may check your score. Non-streamlined FHA refinances that go through the normal application process are possible with scores as low as 580.
With a conforming loan, you have two factors to contend with. Your lender will vary your rate based on your score. According to October 2013 data from FICO, 30-year fixed refinance loans are available with a FICO score as low as 620, although the best rates are available to borrowers with scores of 760 or above. The actual break point for your rate will vary by lender, though. If you're attempting to refinance a loan with less than 20 percent equity, you will also have to purchase private mortgage insurance with your refinance. PMI is priced in part based on your credit score. If you have a lower score, your PMI will cost more in addition to the higher interest that you will have to pay.
Managing your FICO score can be as important to your refinance as it was when you took out your mortgage. As such, having good credit habits leading up to your refinance application can help you to qualify for a loan or to qualify for a better rate. Correcting inaccurate entries on your credit report and reducing the amount of credit you use can help improve your score and get you a better refinance rate.
FICO SBSS Score: Everything You Should Know
The Fair Isaac Corporation (FICO) is most commonly associated with personal credit scores, but it also issues a small business credit score, the Small Business Scoring Score (SBSS), that is widely used by the SBA, banks and other lenders. The FICO SBSS ranges from 0 to 300, with lenders typically preferring minimum scores of 140 to 180.
FICO collects data from major consumer and business credit reporting bureaus and also looks at the documentation you submitted to your lender. FICO weighs a variety of factors when generating your business’s score, but the company doesn’t disclose how important each factor is in its model.
Personal and Business Credit History
FICO will look at personal and business credit scores and history across other major credit bureaus, such as Dun & Bradstreet, Experian and Equifax. The reason FICO looks at both personal and business credit history is that small business owners are frequently viewed as inseparable from their small businesses. That’s to say that if a small business owner(s) can manage her personal finances well, she’s likely to manage her business’s well. Moreover, FICO will consider the personal credit history of all owners/principals of the business.
Experian, Equifax and Dun & Bradstreet all heavily weigh your business’s payment history, and because FICO pulls business credit scores from these bureaus, payment and trade history with suppliers and vendors will be an important part of your business’s FICO SBSS score. This means that paying your vendors and creditors on time will have a positive impact on your score.
Business Financials and Firmographics
Your business’s financials will also play a significant role in your FICO SBSS score. FICO will evaluate your company’s assets and liabilities, cash flow and revenue among other pieces of information. While FICO does not disclose specifics about how this information is used or weighted in their model, having positive working capital, positive cash flow and strong revenue will help your score. FICO also considers your time in business when generating your score. Business owners with no business credit history and limited time in business will only be able to receive a maximum score of 140, and that’s only if you have a stellar personal credit history and a financially sound business. In addition, the size of your business won't have a significant impact on your score, as a one-person company could have the same score as a company with 100 employees.
Like the other major credit bureaus, FICO will also factor any judgments, liens or other derogatory marks against your business into its score. The best scenario for your business is to not have any, but if your business does, it is better if judgments or liens are not recent or consistent and if the dollar amount associated with each is low.
Unlike the personal FICO score, the FICO SBSS score ranges from 0 to 300, with scores above 140 to 180 being considered good to excellent. While FICO launched the SBSS score in 1993, it didn’t start gaining widespread traction until the Small Business Administration began using it for its 7(a) loan program in 2014. For 7(a) loans (including Express and Export Express loans) up to $350,000, the SBA looks for a minimum SBSS score of 140, but generally prefers score of at least 160. Since the SBA started using the score, other traditional and alternative lenders, such as PNC Bank and HSBC, have followed suit. However, many lenders prefer to have borrowers with scores of at least 160 to 180.
Where to Get Your FICO SBSS Score
Your business’s FICO SBSS score is generated when you apply for a loan. Your lender will send your documents and information to FICO, and FICO will collect additional data from the credit reporting agencies (Equifax, Dun & Bradstreet, Experian). This information is loaded into FICO’s LiquidCredit decision engine to come up with a score for your business. This score will be sent to your lender along with a detailed credit report. The best way to ensure that your FICO SBSS Score is accurate is to check your business and personal credit scores and reports at other bureaus. This means checking your Dun & Bradstreet Paydex Score, Experian Intelliscore Plus and Equifax Business Credit Report as well as your personal FICO score. If you see any incorrect information on these reports, be sure to report it to the appropriate credit bureau.
What Is A Credit Score?
We now know why a good credit score is important. So what is a credit score?
First let's clear up the terminology. You will often hear credit scores referred to as FICO scores.
What Does FICO Stand For?
A company call Fair, Isaac and Company developed the credit score rating formula that all credit bureaus and lenders use. The credit score is now commonly referred to as the FICO score (from Fair, Isaac & Company) and the two terms are interchangeable.
Your credit score or FICO score is not a single number. There are 3 major credit bureaus that provide credit scores. The credit score from each can be slightly different.
Here is an outline of the basis for determining your credit score or FICO score. Each number represents the percentage of that information that makes up your credit score.
35% is based on your payment history -
Do you have a record of late credit card payments, delinquencies or bankruptcies? The more late payments on record and the more recent they have been, the more negatively they will affect your score.
30% is based on the amounts you owe -
This not only includes how much you owe but how much of your available credit you have used. If you consistently use 75-80% or more of your available credit (for example, keep your credit cards at or near the maximum), your score will be lower than if you are using a small percentage of the credit available to you.
15% is based on the length of your credit history -
How long you have had accounts and credit, factor into your credit score. Credit cards that you have held for a long time give you a higher score than new credit cards.
10% is based on how much new credit you have requested -
If you have requested a lot of new credit in a relatively short period of time, you are considered to be a higher risk than someone who has applied for less credit.
10% is based on the types of credit you use -
This includes mortgages, loans, and credit cards. If more of your debt is high interest credit cards, you may be considered a higher risk than someone whose biggest debt is their mortgage.
So What is a Credit Score And When Is It Considered Good?
FICO scores range from about 300 to 900.
In general, the higher the score, the lower the credit risk. Because lenders have somewhat different standards for how much risk they will accept, a credit score that is considered acceptable by one lender may not be accepted by another.
What is a good credit score? According to Craig Watts, Fair Isaac's spokesperson "The very best rates go to people with scores above 770, but a score of 700 is considered good".
The average score is somewhere around 725.
What is a credit score and when is it considered 'good' according to E-loan, a major online loan company? Here is their credit score scale.
- Above 730 Excellent credit
- 700 - 729 Good credit
- 670 - 699 Lender will take a closer look at your file
- 585 - 669 Higher risk; you will not be eligible for the best rates and products. Credit products may not be available.
- Below 585 Credit options will be limited or not available. Lender will need to consider other information in your application.
You may want to let a law firm remove the negative items from your Credit Report and help you raise your FICO score. Lexington Law has been a trusted leader in credit repair since 1991.
Do You Have A Good Credit Score or Bad Credit Score?
Go from what is a credit score to get free credit report.
- When you apply for credit – whether for a credit card, a car loan, or a mortgage – lenders want to know what risk they’d take by loaning money to you.