The FICO score will be used to evaluate your qualification for a particular credit line or loan program and to calculate the applicable interest rate. Depending on their specific institutional needs, some lenders may use the highest FICO score or the middle score, or only one FICO credit score if the credit transaction is for a consumer purchase.

For instance, if you were to apply for a house credit card at a department store, they would run your credit profile (with your permission, of course) to obtain a FICO score. On the assumption that the store reports to only one of the three credit bureaus – as most department stores tend to do -, then the inquiry will go only to that bureau. The store would make its decision based on only one bureau’s information, and by using only the one FICO score.

The system works differently for mortgage credit. Banks report to all three credit bureaus (Experian, Equifax and Trans Union), so they would get three different FICO scores, calculated on three credit reports that the credit bureaus sent for scoring by FICO. Since there are three FICO scores, banks generally will use the middle or average FICO score. Depending on the type of financing you are seeking, whether it is for a new car, appliances, a credit card, or a home mortgage, your FICO score makes up a significant portion of the decision-making process. The FICO score will determine the premium rates you pay for insurance and the interest rate available to you on a loan.

Your FICO score is usually a composite of the following:

35% of your FICO score is payment history, and the key items include frequency, severity, and most recent occurrences of non-payment — which means that all late or missed payments will hurt your FICO credit score, but missed payments of more recent dates will have bigger effect;

30% of the FICO score is credit utilization, and estimates the balance of credit accounts in relation to the maximum credit available, with revolving credit lines (usually, credit card accounts) being the most significant;

15% of FICO scores cover credit history, the number of years credit has been established (the longer, the better; and one trade credit line for 5 years will affect the FICO credit score better than 2 trade lines for 6 months);

10% of the FICO score involves type of credit, which will monitor the mix of revolving credit inquiries, but will not include inquiries with no finance rating (as an inquiry from your employer, for instance).

As mentioned earlier, there are three FICO scores developed by the Fair Isaac Company – one each from the three major credit bureaus. Experian has the Experian/Fair Isaac Risk Model; Equifax has Beacon; and, Trans Union has Empirica. Consumers are likely to have a different rating with each agency, because although they all use the FICO model, each credit reporting bureau has its own set of reporting companies and there may be variations in the credit information that they send for calculation of FICO score.

There are other types of FICO scores:

• Application Risk Score – In this set-up, the lender uses a scoring system that includes a FICO score but also considers information extracted directly from your credit application.
• Customer Risk Score – Also called “behavior scores”; here, a lender may use the scores to make credit decisions on its current customers; this score uses the FICO score and also information on your payment history with that lender.

The range on your FICO score is from 300 to above 850 and would suggest a credit profile as follows:

FICO score 720 and above: This is a very good FICO score, and it suggests that the risk of default on your credit is very low. If the lender should find any exceptions in your credit report, these will easily be waived and set aside; and if there are any weaknesses in underwriting your credit, your high FICO credit score favorably compensates for that weakness.

FICO score 660 to 719: This is also a good FICO score, and suggests that your risk of default is low. This FICO credit score indicates that your credit history is acceptable.

FICO score 620 to 659: This FICO credit score represents a degree of risk. You can qualify for 100% financing, but certain conditions may be included in the credit agreement. The credit underwriter will more than likely consider you, but will investigate further to check whether you are: recently self-employed; have high loan to value ratios; have low cash reserves; exceeding normal debt to income ratios; staying in multiple dwelling unit properties.

FICO Scores below 630: Anything below 630 is a really bad FICO score. Your risk of default is very high, and you will need to present strong compensating factors to minimize credit risk before the underwriter would consider approving a loan. Some lenders may be willing to arrange 100% financing.

FICO score between 619 to 585: The underwriter can consider approving a loan but that depends on the credit issues, and may also consider an applicant with no previous delinquency and lack sufficient credit. Lenders are more likely to see mortgage delinquencies if they loan money to a consumer with a FICO score below 620.

FICO score between 584 to 500: You will have to explain your credit history in writing, and will need to pay off some of your debts and other payables; the underwriter may still consider you acceptable but the high risk factors should not be layered.

FICO score below 500: There may some serious issues outside your control that caused the setbacks. There are individuals who do not care so much about what happens to their credit. Perhaps this is what we should call Bad Credit. This does not mean the world has ended, though, and there is still hope.

The moment your credit report changes, your FICO scores will change as well. Your FICO credit score does not change from one month to the next at random, unless there has been a late recorded payment or an adverse report. While a late payment, collection or bankruptcy can be very damaging and will immediately lower your FICO scores, it takes time before you can raise your FICO scores. It is good to get in the habit of checking your credit profile every 3 to 6 months.

Your credit report must contain at least one trade line over a six-month period in order for a FICO score to be generated, and must have one trade line that has been updated in the last six months also. This will insure that there is enough information — and enough recent information — to calculate a FICO score.

Your FICO credit score is meant to be a measure of your creditworthiness as a borrower. In the mortgage industry, mortgage products change constantly, so if you manage your credit well you will almost certainly qualify for an advantageous home refinancing- or home purchase program. In the case of revolving credit lines, your account is reviewed periodically, and if you manage it well, you will likely be given more perks and privileges.

Credit-Wisdom.com Provides Expert opinions and reviews to help you Compare and Apply for a Credit Card – Compare Credit Card Offers with Credit-Wisdom.com – Unraveling the best in Personal and Business Credit Cards.

Related posts:

1. Your Credit Score Could Affect Your Life
2. Find Out How Your Credit Score Is Calculated
3. Improving Your Credit Score – Fundamental Factors

1. Your report does not show real estate loans – this was incorrect, I have had a mortgage for the past 7 years.
2. Your report shows that available credit across your open revolving accounts is too low – I only have one credit card with a limit of $3,000. They are telling me that if I had more credit cards my score would be higher.
3. Your report shows that the ratio of balances to credit limits across your open revolving accounts is too high – My balance on my credit card was approximately $900 which is only 30% of the credit limit which is the suggested balance that consumers should have on their credit cards.
4. Your report shows that the time since your oldest revolving account is too short. – Wrong. I have one revolving account, my credit card which I have had for the past 10 years.
5. Your report shows one or more inquiries on file – I had one inquiry in June 2005. One inquiry in February 2006 and one in October 2006. Inquiries should be obtained no more than twice a year unless you are doing comparison shopping. I am being penalized because I had two inquiries within one year.
Well, needless to say, I wrote each credit bureau and disputed all the reasons they gave me. I received two responses back and am waiting for the last response. After I receive it I will order a copy of my credit report again to see if my scores have increased. I have struggled to find out how one obtains an 800 FICO credit score or higher. From the looks of things it doesn’t seem like that is possible anymore. Whether you have good or bad credit, the credit bureaus will find ways to make sure your credit score is not as high as it can be.

I advise everyone whether you have bad credit or good credit to order a copy of your credit report once a year, read every single line on your credit report and read all of the information provided along with your credit report. Make sure everything listed on your credit report is accurate. Even a few points on your credit score can make the difference between getting approved or getting declined and we all need those extra points. Good luck!

Harrine Freeman is a speaker, personal finance expert and the author of, “How to Get Out of Debt: Get an “A” Credit Rating for Free Using the System I’ve Used Successfully with Thousands of Clients.

She is the CEO of H.E. Freeman Enterprises, a credit repair and personal finance services company. She is a member of the American Association of Daily Money Managers, SPAWN, Toastmasters, AAUW, National Association of Women Writers and the Women Network. For more information on how to get out of debt or to buy her book please visit http://www.hefreemanenterprises.com

Related posts:

1. Find Out How Your Credit Score Is Calculated
2. You and Your FICO Score
3. The Mysteries of Credit Scoring Revealed

Your Credit Score is so important these days, that in order to just get job, you a had better of managed your Credit Score properly. Most institutions now look at your score as glimpse into how responsible of a person you might be. Your Credit Score typically ranges from 380 being extremely bad; to 820 being the best. The Bureaus all have a scoring system that dictates your credit worthiness. Whether you have revolving credit, or installment loans, it all determines your creditworthiness with all three bureaus. Your credit score could drop if you charge your credit cards are over 30% of the granted credit line. Your Credit Score will drop if you close out good credit, that has no balance owed. If you are late on a obligation, your Credit Score will suffer usallly a 20 point reduction, which by the way is a extremely big drop. This kind of drop could mean the difference of getting the best rate on a mortgage, or even getting the new job you worked so hard to get. Each of the Bureaus and there are three, Experian, Equifax, and Trans Union, all score your Credit based on your Credit History. Your Credit Score is so important these days that you need to know what it is with all Three Bureaus.

Your Credit Report, is what all institutions look at when it comes to applying for a laon, credit card, mortgage, insurance, or even a job as well. As a consumer you need to know what is on your Credit Report. When accessing your Credeit Report, you need to make sure you access a Tri Merge Report from all three Bureaus, and with all three of your scores. This is what most everyone looks at. If you are going get your credit report this is exactly what you need. You need to know what they are looking at. annualcreditreport.com offers a credit report, but what they fail to mention is you don’t get your scores. Your credit report is useless if you dont get your credit scores from all three bureaus. Your Credit Report will show what all your creditors have to say about you in regards to your history on all your obligations that involve borrowed money. It will give a snap shot for the last 7 years. So make sure you pay everything on time, and don’t allow anything to go to collection.

Your Credit Scores:

The credit scoring software is somewhat similar, but there are different names for each of the agencies.

For example:

Equifax is “Beacon”
Trans Union is FICO Classic
Experian is FICO Risk Model
The general scoring range for these models is as such:

• 780-850 – Low Risk
• 740-780 – Medium -Low Risk
• 690-740- Medium Risk
• 620-690- Medium High Risk
• 620 and Below – High Risk or “Sub-Prime.”

Like any recipe that is top knoch, the precise formula that are used for calculating various kinds of credit scores for credit reports are well guarded trade secrets. Nonetheless, Fair Isaac has released enough information to give very general ideas of how scores are calculated.

Remember the score is calculated by analyzing the entire credit information in the credit report, and the various factors that make up the whole. No singular piece of information or factor by itself determines your credit score.

Factor 1: Payment History (35%)
Factor 2: Amount Owed—– Extent of Indebtedness (30%)
Factor 3: Length of Credit History——- The Longer, the Better (15%)
Factor 4: How Much New Credit? (10%)
Factor 5: Type of Credit (10%)

With all of this being said, go to the top resource in the nation for your Credit Report, http://www.my720fico.com , this resource was created by lenders that understand the need for the correct information out there.

Related posts:

1. Common Credit Score Myths
2. You and Your FICO Score
3. Find Out How Your Credit Score Is Calculated

Fico score ratings are used for most mortgage lending, which means, you need to know what will hurt or help your credit score points. To make it clear, here are some of the most common credit score myths.

* Checking your credit report will hurt your credit score

Checking your own credit report and credit score counts as a soft inquiry and does not go against your score. However, if anyone else like a lender or credit card company is checking your credit report, this is considered a hard inquiry and will generally knock off about 5 credit score points.

The credit score rating system treats multiple inquiries in a 14-day period as just one inquiry. The system ignores all inquiries made within 30 days prior to the day the credit score is computed. So if you want to minimize the damage from credit inquiries, shop for a loan in that short period of time.

* Closing old accounts will improve your credit report score

Sometimes even lenders will tell you to close your old and inactive accounts as a way for improving your credit report score. In most cases, closing old accounts will actually have the opposite effect with the current credit score rating system.

Canceling old credit accounts can actually lower your credit score because it makes your credit history appear shorter. If you want to reduce your levels of available credit, it’s better to reduce or close new accounts instead. Applying for new credit is more likely to lower your score.

* You need to check more than just FICO score rating

If you ever hear this from anyone, consider it a red flag. All of the three major credit reporting bureaus offer FICO credit score ratings using the formula developed by Fair, Isaac. Even though each one gives the scores a different name you only need a fico score rating from the three major credit reporting bureaus.

At Equifax, the FICO score rating is called the Beacon credit score. At TransUnion, it’s called Empirica. At Experian, it’s known as the Experian/Fair, Isaac Risk Model.

The reason each of the three major credit reporting bureaus will have three different scores is because they don’t all share the same data. So when checking your credit report, just make sure it comes from the three major credit reporting bureaus: Experian, Trans Union and Equifax.

Examine your credit reports from all three major credit reporting bureaus before you apply for a big loan like a mortgage. Fix any errors in all three reports before you shop for a loan because it takes time to correct your credit report.

* Credit counseling will hurt your score

The current FICO credit score rating system ignores any reference to credit counseling that may be in your file. The researchers at Fair, Isaac, the company that created the FICO credit scoring rating system, found that people getting credit counseling didn’t default on their debts any more often than anyone else.

However, any late payments you’ve had with creditors will hurt your credit score. Credit counseling can hurt your ability to get a loan because you probably have had trouble paying creditors.

Some lenders will back away if you are in credit counseling. Others may see it differently, but usually will charge you higher interest rates than if you had perfect credit.

The best way to improve your credit report score is paying your bills on time and paying down credit card debt. Check your credit report regularly for any errors and make sure you don’t fall for these common credit score myths.

This article is supplied by http://www.credit-repair-facts.com where you will find credit information, debt elimination programs and informative articles that give you the knowledge to correct your own credit and credit report. 

Related posts:

1. All About Your Free Yearly Credit Report
2. You and Your FICO Score
3. Find Out How Your Credit Score Is Calculated

You may have read some info on what will and won’t damage your credit report and ultimately what the lenders look at – your credit score, I’ve done the research for you and can let you know a few secrets, firstly lookout from information you broker may provide to you, it it sounds like the following then find a new brokers.

By closing your bank or credit card account they can help your credit score? Actually it will do the opposite – it will damage your score. While It’s true that having too many open accounts can hurt your score, once you’ve opened accounts actually already done the damage. It is simply impossible to repair it by shutting the account, and you may actually make things worse. It works by the possible lenders looking at the difference between your available credit and what you’re actually using.

By shutting down these accounts will decrease your total available credit, making your balances loom larger in ratio to the possible amount of funds you can access this will have a negative effect your score. Closing older accounts will also make your credit history look younger than it really is which will also hurt your score.

When thinking of getting a consolidation loan then consider that you will damage your credit score – you will decrease your monthly repayments as you interest rate on the loan will typically be small but you will have a serious effect on on your credit score – so it might be worth not getting a consolidation loan – it depends just how dad your score already it.

Can checking your FICO score can hurt your credit? This is wrong – and it is only considered a “soft Call” I’ll explain what this means later. Basically, applying for new credit (a “hard call”) is only what can damage your score, or put a ding it the score. Simply ordering a copy of your own credit report or credit score will not.

Those mass inquiries made by credit card lenders, or other general lenders, who are trying to decide whether to send you an offer for a pre-approved card will not going to hurt you, although if you take them up on their offers then that’s a different story.

A way around this is just apply for credit in a short period of time – these “hard calls” – multiple inquiries – within a 45-day period act as just one inquiry, The FICO score treats these as one block of enquiries and ignores all inquiries made within 30 days prior to the day a final score is made.

Remember that one inquiry will generally knock 5 points off a score, that does not sound like much but every point counts and you don’t want to loose any unnecessarily.

Will having Credit counseling damage my score as much as a bankruptcy? The current FICO formula will ignore reference to a credit counseling service on your report. This has only happened in last three years, after researchers at Fair, Isaac, the company that created the FICO scoring system started noticing that people getting credit counseling didn’t actually default on their debts and no more often than anyone else, so because this is a relevantly new amendment there is a lot of people who are not clear on if it damages your Credit Report or not – be you heard it here, it does not.

Your ability to get a loan could still be hurt by credit counseling, however. Your current lenders may report you as late, because you’re not paying what you originally owed or because your credit counselor isn’t sending your payments in on time. Late payments do hurt your credit score. Your credit score it not the only consideration – your income and savings are massive indication of whether you can pay back debt.

Written By Justin Fox

Get your totally free credit report today – follow Credit Report, and check out www.credit-reporter.net

Related posts:

1. Common Credit Score Myths
2. Even People With Good Credit Are Penalized
3. Top 7 Questions About Your Credit Score

We all want to have enough money to pay our bills and have enough money left over to live. To accomplish this, we’re expected to manage our money and our credit wisely. Our credit score is a picture of how well we handle our debts. What are the typical purchases and decisions that are affected by a person’s credit score?

• Applying for a job
• Buying a car
• Purchasing a home
• Renting an apartment
• Applying for insurance
• Requesting a credit card
• Opening a bank account

This is only a short list of products and actions that involve a credit score. So, what is this mystery called Credit Scoring? It all starts with your “credit report”.

The three national credit reporting agencies are Equifax, Experian and TransUnion (with smaller ones including ChexSystems). These agencies act as warehouses for your information. Your credit report contains personal data, which includes your name (priors and variations), birth date, addresses, Social Security number, and past and present employers. In addition, creditor history, inquiries or authorized credit checks, relevant public records and collections are also used for identification purposes Your credit report card includes your creditor history detailing your accounts, payments to banks, credit unions, finance companies, mortgage companies, credit card companies, retail stores and other creditors. These credit lines detail if you pay on time, balances, credit limits, burden of debt and how long you have had your account. Other than you, outsiders can access your credit report by making an inquiry. Credit card companies are notorious for making inquiries, and you can see on the credit report who has accessed your account, and when.

Relevant public records and collections are also on your credit report. This may include bankruptcies, foreclosures, tax liens and any collection agency debts you may have incurred. A foreclosed property can remain on your report for as long as seven years, Chapter 7 bankruptcy for 10 years and, depending on your state, unpaid tax liens can remain on your credit report indefinitely.

The industry standard for calculating a credit score was invented by The Fair Isaac Corporation (FICO). The scores generate a three digit number ranging from 300 to 850. Credit scores are used to assess your level of credit risk by predicting whether you will pay back your credit obligations in a timely fashion. The higher your score, the better credit risk you are. Because there are three different credit agencies, consumers who have a credit report have three FICO scores. Creditors use these scores to determine if they are going to grant credit to a consumer and what interest rate they will charge.

Are you 100% confused yet? It might bring some consolation to know that information sharing is getting better. Prior to 2001, consumers did not have access to their credit scores. Now you can get free copies of your credit report once a year from each of the three reporting agencies.

Uncle Credit Score is watching you and constantly adding or deleting information. But you do have influence over your score and the fluctuations that can have instant impact. The following is a sampling of some actions you might take that can affect your score:

• Paying your mortgage on time
• Applying for a credit card
• A late payment or closure of a credit card

Your level of debt and payment performance account for 65% of your FICO score. Lenders can also consider your income, a spouse’s income, an appraisal report from a licensed appraiser and other factors when considering an application for credit. If you are turned down for credit, by law, lenders must advise you of the reason in a rejection letter. There could be an error in your credit report which you can fix and possibly increase your score. All the more reason to check your credit reports regularly.

Kurt Lehman is a financial services expert and writes about ChexSystems banks and problems as well as payday loan debt

Related posts:

1. Common Credit Score Myths
2. Even People With Good Credit Are Penalized
3. Tips to Get the Best Loans

Sometimes a credit score is also referred to as a FICO score. The term FICO comes from the Fair Isaac Company and is the method that is preferred and used by most credit bureaus to calculate a credit score.

Credit scores range from a low of around 350 (very bad credit) to a high of around 850 (excellent credit). An average score is between 650 and 700, which is where most consumers would not have big problems in getting approved for a new account. But if your score falls below the 600 range, you are going to have difficulty in being approved, at least at prime lending rates, for a loan, credit card, or new line of credit because potential lenders will view you as being a higher risk.

One thing you should note is that you should check your credit report at least once a year from each of the three major credit bureaus. It should come as no surprise to learn that the majority of consumer and business credit reports contain errors and mistakes, and the only way those get corrected is if you dispute the entries with the credit bureaus. If you have 2 or 3 negative entries on your credit report that should not be there or are being reported incorrectly, those by themselves could lower your credit score by as much as 100 points or more.

Assuming you have already gotten the inaccurate entries removed from your credit report, let’s find out how a credit report is scored. Approximately 35% of your score depends entirely on how timely you pay on your monthly financial obligations. Always make it a point to pay your bills on time, and preferably before the due date so that you can be sure that the payment is posted to your account by the due date. Note that this is more than one third of your entire score, so you can see how important it is to make your payments on time each month.

About 30% of your score depends on the level of your outstanding balances to your credit limits. This is primarily for credit cards and department store charge cards. The standard rule of thumb is to try to keep your outstanding balance at one third to one half or less of your credit limit so that it does not appear that you are stretching your credit to the limits. No matter what you do, try to NEVER exceed your credit limit, since that act will lower your credit score almost overnight.

Approximately 15% of your score is related to the length of your credit history, or in other words, how long a period of time your credit report covers. The longer the better. For a young married couple or a student fresh out of college, they may have only a year or two of credit history, whereas many people have a decade or more of credit history on file.

As a surprise to many consumers, about 10% of your score is based on the number of credit inquiries on your credit report. If you submit a lot of credit card applications just because you got them in the mail, each of those causes an “inquiry” on your credit report, and too many inquiries will lower your score.

The remaining 10% is dependent on the type of mix of financial obligations you have. For example, with a mortgage, a car payment, an installment loan, a couple credit cards, and a couple department store cards, you have a good mixture of different types of credit, and this shows your flexibility in being able to manage all of these.

Being aware of how your credit is calculated can help you keep financial strategies in mind so that your credit score can be as high as it should be for you.

For more insights and additional information about how to Raise Your Credit Score as well as getting a free copy of your credit reports, please visit our web site at http://www.credit-help-center.com

Related posts:

1. Even People With Good Credit Are Penalized
2. You and Your FICO Score
3. Your Credit Score Could Affect Your Life

You will need to pay for reports from the three, third party companies and you will need a report from each for a complete credit history. These may cost about $9 per report. However, this is a small price to pay for the comfort of knowing that your finances are in order and that no one is attempting to use your personal details to open credit accounts. These reports may be sent by mail or can be obtained online. It is worth looking at these credit-monitoring companies websites since they may have trial offers where they offer you a free credit report. This would allow you to obtain your report and you can cancel your account with them before you need to make any payments.

You will also receive your FICO score with the report, along with some advice on how you can improve this score. FICO is named from Fair Isaac Corp., which is the company that invented the score. It is a three-digit number that encompasses your entire financial history. This score is based on information from the three, credit monitoring companies and includes all information from your payment history from loans or credit cards to bankruptcy filings that have been made. The lower the score the better your credit history and it is surprisingly important since many business that you would never imagine needing it, use it to find out about your financial status. Obviously lenders use the FICO score to assess you as a potential borrower. However, did you know that employers may access your score as well as landlords who may wish to see if you are likely not to pay your rent and if they need you to put down a larger deposit, or even insurance companies. These companies use the score to assess the risk you may be as a potential client and there fore set the policy prices accordingly.

As you can see, the FICO score is used by many different people who want an idea of your finances. It may not be entirely accurate, but it is most often used due to its ease of use, as most companies won’t want to read numerous credit reports of all the people that they deal with. It is therefore critical that you do everything you lower the score and keep it as low as possible. Many years of buying on your credit cards without having the money to pay off the account can leave you with a high number that will be held against you long after you have forgotten what you bought. But there are ways that you can improve your credit rating and therefore FICO score.

First of all, always dispute things that are not accurately depicted on the report. For example, if there is a record of late payments on a credit card account but you don’t think it is true contact the creditor and credit agency by post. They will have to investigate the matter and if the creditor does not get in touch within 14 days, the bad credit will be dropped from your report, instantly improving your score. Easy isn’t it! In fact, disputing any mistakes is the easiest and most direct way to lower your score.

Other ways your FICO score may be lowered include spreading the cost of your credit card debts especially with the increase in 0% on balance transfer deals that are available today. Also, close any accounts that you are not using.

Since your credit score has such a strong influence during your life, it is advisable that you obtain a report once a year so you can check for any mistakes and make sure that you are doing everything possible to improve your rating. This is the first step you can take to ensure that you have a solid financial future.

Still need more information? Then visit http://www.essentialcreditreports.com for more of my articles.

Related posts:

1. Find Out How Your Credit Score Is Calculated
2. Improving Your Credit Score – Fundamental Factors
3. The Mysteries of Credit Scoring Revealed

Payment History

Do you pay your bills on time? Most creditors, lenders, and service providers will charge a fee if you do not. Obviously, the biggest thing wrong with that is the egregious waste of money. What is worse in the long term is that after 30 days of nonpayment, the lender will likely report you to one of the major credit bureaus. (In the U.S., there are three such credit bureaus: Experian, Equifax, and TransUnion.) Considering that thirty-five percent of your credit score is based on payment history, it becomes clear how important it is to keep up with your financial obligations. No other single factor has that much influence on your FICO score.

Debt to Total Credit

The ratio of your outstanding debt to the total of your credit lines and loan amounts counts for thirty percent of your credit score. For example, if you have a credit card with a limit of $5000, and you owe $4000, your debt to total credit ratio is eighty percent. After paying down $3000 of the principle, your outstanding balance is $1000, giving you a ratio of twenty percent, which is much better.

If your outstanding balance occupies seventy percent or more of your total credit line, it is viewed negatively by the credit bureaus. If the ratio is in the range of thirty to seventy percent, it is doing little or no harm to your credit score; however, it certainly is not helping your credit score. Bring your debt to less than thirty percent of your total available credit, and your FICO score will very likely improve. Getting balances and, therefore, debt to credit ratios down to zero is clearly a desirable goal. It is important to remember, though, that unused credit will not help your credit score. We will explore that topic a bit later.

Length of Credit History

Fifteen percent of your FICO score is based on how long you have had some type of credit. The perception is that someone who has owned a credit card for twenty years is more likely to be responsible and credit worthy than a young person right out of high school who has the same credit card. Although this is true generally, it is certainly not always the case; that is why it is weighted significantly less than payment history and the debt to credit ratio.

New Credit

If you have one credit card for ten years, and then you apply for and receive three more credit cards, expect your credit score to come down a bit. A long-established credit account is considered more stable than a new account. Of course, how your credit score reacts to new credit is also affected by other factors. A new card will increase your total credit line, thereby reducing your debt to credit ratio. An old credit account with a poor payment history is worse than a new account in good standing. All things being equal, new credit is not bad, but old credit is very good. New credit accounts for ten percent of your FICO score.

Unused credit is considered very much like new credit. If you can use a credit card every month, and pay off the balance in full every month, you will see your credit score increase steadily. This is difficult for many people, because of the temptation to overuse the credit card. Responsibility and restraint are critical when using this technique. Remember that, even though unused credit is not very good, it is not at all bad; overused credit is.

Types of Credit Used

The remaining ten percent of your credit score is based on what type of credit you have used. A retail store credit card is not very good. Too many of them could be bad for your credit score, in fact. Small loans, if paid off in a timely manner, have a positive effect. Major credit cards are even better. Big ticket items like auto loans and home mortgages are very good, once again provided that you make the payments on time.

These five areas are the basis for your FICO score. Armed with this knowledge, you are better equipped to make the changes necessary to improve your credit score. An overwhelming majority of lenders will use your FICO score when considering your application. Put yourself in position to get the best possible deal. Read this article again, and then get started!

Michael Rasco created WarOnCreditCardDebt.com to help others attain victory over debt, and control over their lives. This information is based on his research and lengthy personal experience with the burden of credit card debt.

Related posts:

1. Find Out How Your Credit Score Is Calculated
2. Debt To Income Ratio – A Critical Factor In Your Credit Score
3. Improving Your Credit Score in 5 Steps or Less – The Key to Entrepreneurial Success

The calculation of your debt to income ratio is a straightforward one. You simply divide your total monthly debt payments by your total net income (that is your income after taxes). While some debt is unavoidable and may even be desirable for achieving your financial goals the real question is how much debt is too much; just where do you draw the line. Obtaining credit is often a function of a loan officer calculating the debt to income ration as a way of determining your ability to meet new obligations. Too high a debt to income ration will also have a negative impact on your FICO score, often making credit obtained more expensive than it needs to be. Below I suggest categories for inclusion in calculating your debt to income ratio to see where you stand.

Monthly Debt Payments to Consider:

• Mortgage or rent payments
• Payments on a home equity loan
• Car payments
• Student loan payments
• Minimum credit card payments times 2
• Other outstanding loan amount payments
• Child support payments

Monthly Income to Consider:

• Total net or take-home pay
• Child support or alimony payments received
• 1099 Income after taxes divided by 12
• Other monthly income

Now add up debt and income and divide.

The above list is only a guideline for gathering personal information. It may include every possible aspect of your debt/income but you may need to add categories or not use some of the categories in your calculation. If you add lines to your debt calculation do not include bills for services or products unless you have placed such bills under a payment plan such as establishing a fixed payment plan with your dentist. Under income do not include windfalls such as one time gifts, an insurance settlement, an inheritance or lottery winnings.

So now you have made the calculation. How can we answer the question how much is too much? When applying for credit, the loan officer will look at your debt to income ratio as one factor in making a decision but it will not be the only factor considered. The same debt to income ratio may be great for one family but may have a negative impact on another. Debt to interest ratios in the end are a subjective tool for loan officers to make decisions about your ability to meet a new obligation. There are some general guidelines, however, that will give you a reasonably solid picture of where you stand in the eyes of a loan officer.

• 30% or less is generally considered as an excellent ratio by the vast majority of loan officers
• 20% – 36% is a good ratio and will most likely not cause any problems with loan officers or have a negative impact on your FICO score
• 36% – 40% puts you on the edge of the limits of acceptability. Most lenders will ask for an explanation for why your debt to income ratio is so high. In addition, a debt to income ratio in this range begins to have a negative impact on your FICO score so lenders look to other strong numbers before making a decision to loan more money to you
• 40% or higher sends up red flags with lenders and your FICO score. Often, this high a ratio will be a deal killer with most lenders

By calculating your own debt to income ratio you begin to get a handle on your own financial situation. If the ratio is too high it tells you you are too deep in debt and you must do something to reduce debt. Of course, if it is very low then you need do nothing. For most lenders and the impact of debt to income on your FICO score a positive reduction in the ratio is presumed to be a sign of a healthy financial condition and goes a long way in enhancing your credit history.

Roger Passman is the President of WDC Financial Services, Inc. His firm works with clients to restore damaged credit, negotiate payment plans, and reduce debt. You can visit WDC Financial Services at http://www.wdcfinancialservices.com

Related posts:

1. Top 7 Questions About Your Credit Score
2. Improving Your Credit Score – Fundamental Factors
3. You and Your FICO Score