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Credit Scoring - FICO ScoresCredit scoring is a method of evaluating the ability and probability of credit users paying off their debts. FICO scores are credit scores developed by Fair Isaac Corporation (FICO). Today FICO credit scoring is widely used and accepted by lenders as a reliable source of credit evaluation.
Creditors will use credit scoring to determine how much of a risk proposition you are in terms of paying off debts. In other words, creditors would like to know how likely are you to repay the money they seek to lend you. Higher your credit score, the less of a risky proposition you are for loan grants. Credit scoring is used in determining loan interest rate, the amount of your down payment and the types of mortgages available to you. Credit scoring models are developed by analyzing statistics and picking out characteristics that are believed to relate to your creditworthiness. Credit score analyzes a borrower's credit history considering numerous factors such as:
There are three major credit reporting agencies: Experian, Trans Union and Equifax. Some lenders use one of these three scores, while other lenders may use the middle score to work out your loan application.
What is a good FICO score? FICO scores range between 300 and 850. Credit scoring is rated as follows: If you are denied credit due to credit scoring, the Equal Credit Opportunity Act (ECOA) gives you the right to find out the reason for the denial within 30 days. You are also entitled to a free copy of your credit bureau report within 60 days, which you can request from the credit reporting agencies.
Ways to Improve Credit Scoring While it is difficult to drastically increase your credit scoring over a short period of time, you should all you can to improve your credit scores. Here are some ways you can adopt.
While there is no doubt that a good credit scoring is important, it is necessary to point out that FICO scores do not take into account your age, income, assets or employment history. Moreover, FICO scores treat all late payments equally which does not reflect the true status of a person’s credit-worthiness. Ultimately it all depends on the lender. There are lenders who besides taking into account the FICO credit scores, they also pay close attention to income, assets and employment history. |
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