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C&L Value Advisors LLC
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January/2011
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Your Financial Health
Your
credit history can determine whether you get a good job, a decent
home, a deal on your cell phone and reasonable insurance rates.
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Credit scores are vital to your financial
well-being. You should know how they are calculated and how to
keep them favorable.
Score Interpretation
The
performance definition of the FICO (Fair Isaac Corporation), risk
score is to predict the likelihood that a consumer will go 90 days
past due or worse in the subsequent 24 months after the score has
been calculated. The higher the consumer's score, the less
likely they will go 90 days past due. In general, a FICO score above
750 will almost guarantee an approval. Anything between 700 and
749 will likely result in an approval, but interest rates may be
elevated. Anything between 650 and 699 could get you approved
but your interest rates will be even higher. Anything below
650, which is the current dividing line between prime and subprime
(as of 2011), will likely get you declined.
A
credit score is primarily based on credit report information,
typically from one of the three major credit bureaus: Experian,
TransUnion, and Equifax; all of which have developed their own
proprietary scoring models.
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There are 5 parts to your FICO Credit Scores
Payment
History is about 35% of your score
Have you paid your creditors on time? Late payments,
bankruptcies, and other negative items can hurt your credit score.
How
Much Your Owe is about 30% of your score
Your score is based on the amounts you owe on all your
accounts, the number of accounts with balances, and how much of your
available credit you are using. The more you owe compared to your
credit limit, the lower your score will be.
Length
Of Your Credit History is about 15% of your score
A longer credit history will increase your score.
However, you can get a high score with a short credit history if the
rest of your credit report shows responsible credit management.
New Credit is about 10% of your score
If you have recently applied for or opened new credit
accounts, your credit score will weigh this fact against the rest of
your credit history. Do your rate shopping within a focused
period of time, such as 30 days, to avoid lowering your FICO score.
Other Factors is about 10% of your score
Several minor factors can also influence your
score. For example. Having a mix of credit types on your credit
report-credit cards, installment loans, and personal lines of
credit-is normal for people with longer credit histories and can add
slightly to their scores.
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Credit Report
101
A Simple Guide
to Building your Score
Below is a model found on www.yourwealthpuzzle.com.
It is a terrific visual aid for building a healthy credit report,
establishing a good credit history and how to get back in track if
life has derailed your credit score.
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