The Process of Credit Report Evaluation and Relevance of FICO Scores
When it comes to money lending, the lenders usually refer to the consumer’s credit report, this is to make sure that what’s being lent to the borrower will be returned. They may expect the consumer to make a timely repayment; however, financial situations may change and a consumer may not be able to meet such requirement. Thus, the lenders utilize a credit scoring system that has been devised by Fair Isaac Corporation and this is called the FICO score. Every borrower is assessed and given a FICO score with 300 being the lowest possible score and 850 as the highest.
There are several factors that are taken into account before the FICO score is determined and these all refer to a borrower’s credit behaviour. The factors involved for measuring the credit score include the borrower’s credit history, the present credit owed, the credit history length, recent loans being applied for and other types of credit earned by a potential borrower.
Today, the FICO score is used as a popular reference by the major credit reporting agencies to offer the lending agencies the individual credit report of a person who is applying for a loan or probably getting a mortgage or one who wishes to earn a credit card approval. Banks and even the credit card companies and providers are utilizing the FICO score to conclude or determine the interest rates and the credit limits.
Before the calculation of the individual’s FICO score, the potential borrower should have at least one credit account open and should be active for at least six months. FICO score may be based on this bare minimum of information to compute the score. But, it may take a long process for the individual to be considered credit worthy. There are several lenders who wish to see at least three or four open and active credit accounts maintained for at least a year. Banks are looking into this as well before granting large credit and mortgages to their customers.
Important Financial Aspects to be Maintained to Get a Better Score
The FICO score is largely based on your credit history or credit report. So bear in mind that a change in your credit report will also reflect a change in your FICO score. Thus, in order to maintain a good FICOs core, one should be mindful of the credit report. This means that a borrower should be able to keep credit issues settled. Always maintain a healthy credit as much as possible. This is achieved by making timely payments and following the agreement you had with your lender.
Be aware too that lenders are looking as well in your ability to return the money lent to you. In order to gauge or measure your financial capability, the lenders consider your monthly income as well as employment history and whether you have a steady job in the previous years. When you have not met their standards, you will still be lent money but you will most likely be considered as a high risk. Based on statistics, those having a FICO score of 620 are likely to make defaults in payments.