FICO Score: The most important number in your life

FICO Score: The most important number in your life

How having a high FICO Score can mean the difference between being employed or living on the streets
85
views

It may sound hard to believe, but in the United States there is almost no score more important than your FICO score. Having a high FICO score can mean the difference between getting a loan and not getting a loan, getting low interests on a loan instead of high-interest rates, and even getting a job! Some people say it’s an unjust system, but the truth of the matter is if you play your cards right (pun intended), in time you will see your score soar through the roof, and you can be eligible for almost any type of credit.

In this article, I will cover all you need to know regarding credit scores from what it is, how it is measured, and how to raise your score. Here are some typical questions I will address in this article: What exactly is a FICO score? Why is it so important? Does everyone have a FICO score? How can I check my score?

The purpose of a credit score is for lenders to know whether a consumer is eligible for borrowing their money. This means that when a person applies for a loan, mortgage, or a credit card, lenders want to know if the consumer is financially responsible enough to handle the loan they may issue to them. Lenders decide whether the consumer is responsible enough based on their credit score or their credit report. If the consumer has a low score, they are deemed irresponsible and will either be denied credit or offered a smaller loan. The score aids lenders in evaluating a credit report because the number summarizes the risk.

A FICO score is a credit score that lenders use to measure an applicant’s risk and whether they are eligible for credit (loan, credit cards, and mortgage). It is created by the Fair Isaac Corporation (FICO). FICO has multiple scoring models, however, the most commonly used and important model is the FICO®Score 8 model.

Base FICO Scores range from 300-850 and industry-specific scores range from 250-900. A Base FICO Score is designed to predict the likelihood of paying on time on any type of credit, whereas the industry-specific FICO Score is designed to predict the likelihood of paying on time on a specific type of credit. Base FICO Scores are a component of industry-specific scores, and as a consequence, are highly correlated with one another. The chart below defines the range you fall in based on your score. A 670 or above is what every consumer should at least aim for to qualify for any type of loan.

For starters, NOT everyone has enough information to have a FICO score. However, the majority of adults do have scores. In order to be eligible for a score, you must have a credit card account (that has been reported to a credit reporting agency) opened for about six months. The credit report must also show an account that has been updated after six months. After these six months, you will have an official FICO score.

Lenders also report your credit usage and information to consumer reporting agencies. Consumer reporting agencies are the corporations that use the FICO scoring models (or Vantage scoring models) to determine your score. According to FICO’s website, 90% of major lenders use FICO Scores to make their lending decisions. There are three national consumer reporting agencies in the United States: Equifax, Experian, and Transunion. Most of the consumer information collected by the bureaus are similar (and they usually use similar scoring models) resulting in similar scores within all three bureaus. However, not all lenders report to all three agencies so there are oftentimes discrepancies between the bureaus. This can result in different scores. Some of the bureaus may also store information differently from one another, again resulting in slightly different scores.

When determining a FICO Score, there are five key components: payment history, credit utilization, length of credit history, new credit, and types of credit.

  1. Payment History (35% of score) - It’s as straightforward as it sounds. This factor looks at the history of your payments. In other words, it focuses on whether you paid your bills on time, or whether you have any debt, foreclosures, bankruptcies, etc. If you have any of the above, your score will dramatically decline. So the key to having strong payment history is to always pay on time and make sure you don’t have any outstanding debt. Also, if you have accounts that have gone to collections, you will appear far less attractive as a consumer. Since it compromises 35% of your score, it is the most important factor and should be a consumer’s top priority when borrowing credit.
  2. Credit Utilization (30% of score)- This takes into consideration your debt-to-credit limit, or the ratio of what you use to the limit you are loaned. The less you use the better, but it is better to use a little bit than nothing at all. The key to an optimal score is using less than 10% of your utilization. But if you are satisfied with a fair score than use no more than 30%.
  3. Length of Credit History (15% of score)- Simply put, the longer your credit history the better. This means those who have been using credit for longer periods of time, have the oldest accounts, and have a higher average age of accounts, are at an advantage. According to creditkarma.com, having an average age of nine or more years means an excellent length of credit history (while zero to two years is very poor, two to four years is poor, five to six years is fair, seven to eight years is good).
  4. New Credit (10% of score)- Another component of your credit score is how many new accounts you have, and the most recent time a new account was opened. If you opened too many new accounts in a short period of time, you are thought to be at a higher credit risk and your score may be lowered. So the key here is to have some new accounts once every so often.
  5. Types of Credit (10% of score)- Finally, FICO also determines your score by determining the variety of credit you have. If you have a multiplicity of credit, such as installment loans, mortgages, and credit cards, the higher your score will be. It also looks at how many total accounts you have. It is not advisable to open different types of accounts just to raise your score. If you don’t need a loan, don’t take one.

Credit scores are incredibly important, and there are many perks associated with having a high credit score. The higher score you have, the lower interests rates you get on a mortgage. This tends to be overlooked but in the long run you will save thousands of dollars. You also have a much better chance of getting approved for a loan, as well as a higher credit limit which leads to an even higher score because of a there being more credit available (debt-to-credit limit). Another advantage of a high score is negotiating power. Since you’ve proven to the lenders that you are financially responsible, you can negotiate with your lenders asking for lower interests rates on your credit cards. Since they are competing for business, if you tell them you found a better rate somewhere else, they will likely lower their rate just to keep your business.

As aforementioned, having a poor credit report has been associated with unemployment. While companies do not have access to the scores themselves, they have access to the reports. Certain companies will not hire you just based on your report, because poor credit is often linked with theft and misappropriation of funds. Additionally, hiring someone with a poor credit report may cause a company to suffer litigation from “negligent hiring.” As a result, it is more than crucial to focusing on building a strong credit report.

Additional Information

Any consumer must know that there is something known as an “inquiry”, which is the authorization you give to the bureaus to release your credit report. There are two types of inquiries: a “soft inquiry” and a “hard inquiry”. A “soft inquiry” is when you are not authorizing your lender to review your report, but rather you are authorizing it for yourself. Soft inquiries may be pulled at any time upon request, and do not affect on your score. A soft inquiry is also when a business makes credit checks or offer your services or promotional offers. Hard inquiries are inquiries where you authorize a lender to view your credit report to see determine your eligibility for credit. This happens whether you are applying for an auto loan, credit card or mortgage. This will negatively impact your score and it is best to have fewer hard inquiries. However, if you are “Rate shopping” for the best interest rates for a specific type of loan in a period of 45 days, that will only be treated as one hard inquiry and will have little to no impact on your score.

Every year, every consumer is entitled to one free credit report a year. These credit reports may be found by visiting annualcreditreport.com. This is the safest site to view your credit report as it is endorsed by the Federal Trade Commission. Other sites may be out to steal your identity, so stick to that website to ensure safety. It is highly suggested to view your credit report every few months to make sure there are no derogatory marks and theft on your report. It is quite common to have errors on a report which can severely impact your score, so definitely order your free report. To check your scores, you can purchase a monthly or yearly package from any (or all) of the three credit bureaus. Some offer trials for $1 where you can check your score and report and cancel the trial before the period ends to avoid monthly charges.

While the more accounts you have the better, there shouldn’t be too many opened in a short period of time. There is no rule of thumb as to how many accounts you can open without a huge impact, but opening a few in a few years is the safe route to take. According to FICO, “people with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries on their reports.” As a result, they are seen as more vulnerable.

The most important lesson from all this is to not spend what you don’t have! Unless it is a case of emergency, no should EVER spend more than they can afford to pay back. Keep in mind interest rates are high on credit cards, so you will owe even more than you borrowed if you can’t pay your bills on time. Play by the five rules above and you will have a high credit score.

Cover Image Credit: myfico.com

Popular Right Now

To The Boy Who Will Love Me Next

If you can't understand these few things, leave before things get too involved
37070
views

To the boy that will love me next, I need you to know and understand things about me and my past. The things I have been though not only have shaped the person I’ve become, but also sometimes controls my life. In the past I’ve been used, abused, and taken for granted, and I want something real this time. The guys before you were just boys; they didn’t know how to treat me until it was too late. They didn’t understand how to love me, until I broke my own heart. Before you truly decide to love me I want you to understand these things.

When I tell you something, please listen.

I’m my own person, I want to be loved a certain way. If I ask you to come over and watch movies with me please do it, if I ask for you to leave me alone for a few hours because it’s a girl’s night please do it. I don’t just say things to hear my own voice, I say things to you because it’s important to my life and the way I want to be loved. I’m not a needy person when it comes to being loved and cared for, but I do ask for you to do the small things that I am say.

Forgive my past.

My past is not a pretty brick road, it is a highway that has a bunch of potholes and cracks in it. I have a lot of baggage, and most of it you won’t understand. But don’t let my past decided whether you want to love me or not. My past has helped form who I am today, but it does not define who I am. My past experiences might try and make an appearance every once in a while, but I will not go back to that person I once was, I will not return to all that hurt I once went though. When I say those things, I’m telling the complete and honest truth. I relive my past every day, somethings haunt me and somethings are good reminds. But for you to love me, I need you to accept my past, present and future.

I’m just another bro to the other guys.

I have always hung out with boys, I don’t fit in with the girl groups. I have 10 close girlfriends, but the majority of my friends are guy, but don’t let this scare you. If I wanted to be with one of my guy friends I would already be with him, and if you haven’t noticed I don’t want them because I’m with you. I will not lose my friendships with all my guy friends to be able to stay with you. I will not cut off ties because you don’t like my guy friends. I have lost too many buddies because of my ex-boyfriends and I promised myself I wouldn’t do that again. If you don’t like how many guy friends I have you can leave now. Don’t bother trying to date me if you can accept the fact I’m just another bro.

I might be a badass, but I actually have a big heart.

To a lot of people I come off to be a very crazy and wild girl. I will agree I can be crazy and wild, but I’m more than that. I’m independent, caring, responsible, understanding, forgiving, and so such more type of woman. Many people think that I’m a badass because I don’t take any negatively from anyone. Just like we learned when we were younger, “if you don’t have anything nice to say, don’t say it at all.” Most people can’t do that in today’s world, so I stick up for myself and my friends. I don’t care what anyone thinks about me, or their option on how I live my life. The only thing I care about is being able to make myself happy. Even though I’m an independent woman, understand that I do have a big heart. Honesty when I truly care for someone I will do just about anything they ask, but don’t take advantage of this. Once you take advantage of this part of me, all respect will be lost for you.

I’m hard to love.

Sometimes I want to be cuddle and get attention, and sometimes I don’t want you to talk to me for a couple hours. Sometimes I want you to take me out for a nice meal, but sometimes I want a home cooked meal. Every day is different for me, sometimes I change my mind every hour. My mood swings are terrible on certain days, and on those days you should probably just ignore me. I’m not easy to love, so you’ll either be willing to find a way to love me, or you’ll walk out like so many others have.

I’m scared.

I’m scared to love someone again. I’ve been hurt, heartbroken, and beat to the ground in my past relationships. I want to believe you are different, I want to hope things will truly work out, but every relationship has always ended up the same way. I’m scared to trust someone, put my whole heart into them, just to be left and heartbroken again. I sick and tired of putting my whole body and soul into someone for them to just leave when it is convenient for them. If you want to love me, understand it won’t be easy for me to love you back.

When “I’m done.”

When I say “I’m done” I honestly don’t mean that I’m done. When I say that it means I need and want you to fight for me, show me why you want to be with me. I need you to prove that I’m worth it and there’s no one else but me. If I was truly done, I would just walk away, and not come back. So if I ever tell you, “I’m done,” tell me all the reasons why I’m truly not done.

For the boy who will love me next, the work is cut out for you, you just have to be willing to do it. I’m not like other girls, I am my own person, and I will need to be treated as such. For the boy that will love me next, don’t bother with me unless you really want to be with me. I don’t have time to waste on you if you aren’t going to try and make something out of us. To the boy who will love me next, the last thing I would like to say is good luck, I have faith in you.

Cover Image Credit: Danielle Balint

Related Content

Connect with a generation
of new voices.

We are students, thinkers, influencers, and communities sharing our ideas with the world. Join our platform to create and discover content that actually matters to you.

Learn more Start Creating

Abortion Bans Are Only A Small Part Of The Republican War On Women

These bans expose the Republican Party for what it truly is.

167
views

This week, several states passed laws that ban abortion after six to eight weeks of pregnancy, before most women even know that they're pregnant. The most egregious of these is Alabama — the state has banned abortion except for in cases of danger to the mother. Exceptions in the cases of rape and incest were actively voted against by the state legislature. Under the new law, any doctor who is caught giving an abortion would be sentenced to 99 years in prison, and the woman would be charged with murder.

Apart from the fact that this explicitly violates the decision of Roe v. Wade (which is the point), this is only a small part of the slow but steady degradation of women's rights by Republicans in the United States. To anyone who believes that this is simply about people being "pro-life" or "saving the children," then tell them to look at what happens after the fetus is carried to term.

Republicans oppose forcing fathers to be involved in the lives of their children that were forcibly carried to term, desires to cut food stamps and make it more difficult to feed said child, cut funding for affordable housing to make it more difficult for them to find homes, cut spending to public education so these children can't move up the social ladder, and refuse to offer the woman or her child health insurance to keep them both healthy. What about efforts to prevent pregnancy? Republicans also oppose funding birth control and contraception, as well as opposing comprehensive sexual education. To them, the only feasible solution is to simply keep your legs shut. They oppose all of these things because it is, in their eyes, a violation of individual rights to force people to do something. The bill also makes women who get abortions felons, and felons can't vote. I'll let you finish putting those two together.

If you view it from this framework, it would seem like Republicans are being extremely hypocritical by violating the personal freedoms of pregnant women, but if you look at it from the view of restricting social mobility for women, then it makes perfect sense. The Republican dogma of "individual rights" and "personal responsibility" is a socially acceptable facade that they use to cover up their true intentions of protecting the status quo and protect those in power. About any Republican policy, ask yourself: does this disperse power or consolidate it? Whether it be education, healthcare, the environment, or the economy, Republicans love to keep power away from the average citizen and give it to the small number of people that they deem "deserving" of it because of their race, gender, wealth, or power. This is the case with abortion as well; Power is being taken from women, and being given back to men in a reversal of the Feminist Movement of the 1970s.

Republicans don't believe in systemic issues. They believe that everyone has the same opportunity to succeed regardless of what point they started. This is why they love capitalism so much. It acts as some sort of great filter in which only those who deserve power can make it to the top. It's also why they hate social policies; they think that helping people who can't help themselves changes the hierarchy in a negative way by giving people who don't "deserve" power, power. Of course, we know that just because you have money and power doesn't mean you earned it fair and square, and even if Republicans believe it, it wouldn't change anything because it wouldn't change how they want to distribute power.

In short, Republican policies, including abortion, leave the average American with less money, less protection, less education, worse health, less opportunity, fewer rights, and less freedom. This is NOT a side effect. This is the point. Regardless of what Republicans will tell you about "inalienable rights" and how everyone is equal, in reality, they believe that some people and groups are more deserving of rights than others, and the group that deserves rights the most are the ones "that will do the best with them." To Republicans, this group consists of the wealthy, the powerful, and the white — the mega-rich, the CEOs of large companies, gun owners and Christians.

So, who do Republicans think deserve power and give it to? People who look and think like them. This, however, begs the question: Who do they want to take it from?

Related Content

Facebook Comments