IS IT WORTHWHILE TO GET A FICO CREDIT SCORE?
FICO is a credit scoring system developed by Fair Issac and Co. in early 1950. This scoring system gives a single number that decides the fate of your credibility with lenders in the U.S. The federal law has recognized this credit scoring method and it is absolutely essential to have a FICO score for loan and mortgage purposes. There are software’s calculating your credibility and they go through your financial history to arrive at this score. More than 90% of American banks and financial institutions use Fico scores to assess an individual’s capacity to repay loans. This score evaluates businesses and companies also.
A Fico score ranges from 350 – 900. If you are above 750 then you are considered to be credit worthy and any lender will be ready to lend to you at competitive interest rates. Your monthly installment will be decided based on your fico score. If you are in the 450 – 700 range, you are still considered to be credit worthy yet your monthly installment and interest will be slightly higher than the 700 + category. Below 450 score does not show you in good light and it becomes difficult to get a loan at this score range. Your interest rate becomes very high as the risk in defaulting is high in this category. You can improve your credit scores by taking a close look at your credit reports and charting a plan of action to improve them.
How these scores are calculated is a secret. Generally past history of repayments to credit cards, loans and mortgages evaluate your credit worthiness. Whether you have claimed bankruptcy, defaulted in your payments or shifted your address several times are all taken into consideration. It is also essential that you have a clean track record with your credit cards and bills. Payment history, with telephone bills, electricity bills and insurance premium all are part of determining your score. Late payments down the score drastically.
If you are a first timer to get a credit card or loan then it is very essential you have a Fico score. This gives the lender an idea about your ability and credibility to repay his money. After all he is not taking any collateral from you. So the risk is his and to ensure that his money is in safe hands the lender depends on the credit score. Experience has shown that borrowers with higher credit scores are less likely to default on a loan. It’s always wise to start with a student loan or pay more than 50% as down payment and take up a small loan to open your credit line. Credit reporting agencies like Transunion, Equifax and Experian are asked by the banks to develop credit reports and scores . Finally the only advice is pay your bills on time and cut the shirt according to your size.
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