FICO INFORMATION
FICO Scores range between 300 and 850. Higher scores are considered better scores. That is, the higher your score, the more favorably lenders look upon you as a credit risk. Your score may be well below the average score of U.S. consumers. Sometimes, the types of credit available to you may be somewhat limited, but there are lenders who may approve your loan application, but possibly with higher interest rates and/or with more restrictive terms. With lower scores, lenders may require additional information to help them evaluate your application for credit - factors such as your income or time at job may be reviewed. You may be requested to provide an upfront down payment or security on the loan before approval. It is important to understand that different lenders set their own policies and tolerance for risk when making credit decisions, so there is no single "cut-off score" used by all lenders. Lenders consider many factors in addition to your credit score when making credit decisions. Looking solely at your score, however, most lenders would consider lower scores as higher risk.
Consistently paying your bills on time and meeting your credit obligations are extremely important factors, which affect your score.
Derogatory public records, collections and late payment information shown on your credit history are considered "negative" information and negatively impact your score.
A Collection happens when your creditor has turned over your account, where you have not paid as agreed, to a collection agency. Collections are considered to be negative and will negatively impact your score. The lender provides delinquency information when you have missed a payment on your credit obligation. Other derogatory indicators, such as a comment with the credit obligation (for example, "account included in bankruptcy"), are also considered negative. Typically, the lender reports late payment information on your credit obligations as 30 days, 60 days, 90 days, 120 days, 150 days, 180 days late or as a “charged-off” account.
An inquiry is a notation on your credit report showing what entities (usually lenders) have requested to view your report. Your credit report includes two types of inquiries:
Involuntary inquires: such as when lenders check to see which consumers may qualify for their pre-approved credit offer in the mail. The FICO Score does not consider these types of inquiries and lenders do not see these types either when accessing your credit report.
Voluntary inquiries: spurred by your own requests for credit, such as when you apply for a loan, you authorize your lender to ask for a copy of your credit report. The FICO Score only considers voluntary inquiries initiated by you (when you were seeking credit) over the most recent 12-month period. These include mortgage, credit card, auto loan and other requests for credit you may have made. Your score is lowered from the multiple inquiries that may occur when you shop for the best auto or home loan. A single inquiry will usually have little (3-7points) impact on your score.
Negative Factors That Effect Your Score.. Your focus on these factors will help you to raise your score over time.
1. Serious delinquency or derogatory indicators/remarks, and public record or collection information is being reported on the credit file
This means you may have evidence of seriously delinquent payment behavior (30 days past due or greater). In addition, there are collections that have been assigned. The percent of U.S. population with serious delinquency being reported on their credit obligations who also have a derogatory public record filed or collection assigned is 14%. This score evaluates when there is a derogatory public record or collection agency reference, as well as one or more serious delinquencies on your credit accounts, appearing on your credit bureau report. Studies reveal that consumers with previous late payments are much more likely to pay late in the future. However, as these items age and fall off the credit bureau report, their impact on the score will gradually decrease. (Most derogatory public records, collection items, and credit account delinquencies stay on your report for no more than seven years, though there are certain items that could remain longer.) ie: Chapter 7 bankruptcies and unpaid tax liens.
There is no "quick fix" to improve the score if the derogatory public record, collection item, or serious credit account delinquency appearing on your credit bureau report is valid. Bear in mind that satisfying or paying off the collection item or derogatory public record will not remove this information from your credit bureau report. The fact that it occurred is still predictive of future repayment risk, so it will still be considered, along with the score.
2. Balances are due on accounts that are past due or have derogatory indicators/remarks
The national average of total amount owed on past due credit obligations by U.S. consumers is around $1,800.
This factor appears when there is evidence of recently missed payments on your credit bureau report. Late payments are a very powerful predictor of future repayment risk and affects 35% of your score. Research shows that the greater the balances on past due accounts, the higher the risk. Bear in mind that closing an account on which a past due amount is still owed does not make it disappear from your credit report.
In order to improve your credit rating over time, it's important to pay all bills when they're due. The longer you do so, the better the score. If you have late payments, get caught up on them and do your best to stay current. As time passes, the importance of these previous late payments will gradually lessen and the score will increase - as long as you make your payments on time on all your credit obligations, and use your available credit responsibly.
3. The time since the most recent past due payment is too recent or unknown
Roughly 46% of consumers have some evidence of delinquency in their credit history. Among these consumers, their most recent late payment was, on average, 19 months ago.
Analysis of consumer credit histories shows that consumers with previous late payments are much more likely to pay late in the future. The score evaluates not only the presence of previous late payments, but also how recently the missed payments occurred. In general, the more recently a payment was missed, the greater the risk, and the lower the score. (Most late payments stay on your report for no more than seven years. Keep in mind that closing an account on which you had previously missed a payment does not make the late payment disappear from your credit bureau report.)
In rare cases, evidence of a past missed payment on a credit account is present on the credit report, but the date of the late payment cannot be determined exactly. An "undateable" credit account delinquency on a credit report still represents greater risk than never having missed a payment at all, and so it will still affect the score. There is no "quick fix" to raise your score if the late payment on your credit bureau report is valid. In order to improve your credit rating over time, it's important to pay all bills when they're due. The longer you do so, the better the score. If you have late payments, get caught up on them and do your best to stay current. As time passes the importance of these previous late payments will gradually lessen and the score will increase - as long as you make your payments on time on all of your credit obligations, and use your available credit responsibly.
4. The proportion of balances to credit limits on revolving/charge accounts is too high
The average proportion of balances to credit limits on revolving charge accounts carried by United States consumers is around 34%.
Analysis of consumer credit behavior repeatedly finds that owing a substantial balance on revolving/charge accounts (Visa, MasterCard, Discover, American Express, Diners Club, department store cards, etc.) relative to the amount of revolving/charge credit available to you represents increased risk. In fact, the level of revolving debt is one of the most important factors and affects 30% of the score. The score evaluates your total balances in relation to your total available credit on revolving/charge accounts, as well as on individual revolving/charge accounts. For a given amount of revolving credit available, a greater amount owed indicates a greater risk, and lowers the score. (For credit cards, the total outstanding balance on your last statement is generally the amount that will show in your credit bureau report. Bear in mind that even if you pay off your credit cards in full each and every month, your credit bureau report may show the last billing statement balance on those accounts.)
The more you owe on revolving/charge credit accounts - relative to the amount of credit available to you - the more your score may be affected. So doing your best to pay your revolving/charge account balances is a smart way to help increase your score. On the other hand, shifting balances among revolving/charge accounts, opening up new revolving/charge accounts, and closing down other revolving/charge accounts will NOT improve your score, and could possibly decrease your score.
5. How Lenders See You.
A majority of lenders use scores as one method to estimate an applicant's credit risk. People with high scores are likely to repay loans and credit cards more consistently than people with low scores. Although scores are remarkably predictive, no one can predict with certainty whether or not an applicant will repay a credit account.
As an example, the consumers in the score range, 550-599, have a delinquency rate of 51%, This means that for every 100 borrowers in this range, approximately 51 will default on a loan, file for bankruptcy, or fall 90 days past due on at least one credit account in the next two years. Most lenders would consider consumers in this score range as fairly high risk. |
