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Resources

What is FICO and how is your FICO credit score calculated?

FICO is the most popular credit-scoring model utilized by lenders, insurance companies, employers, and etc.

 

FICO (Fair Isaac and Company) scores can range from 300 to 850, but the majority of scores usually fall within the 600s and 700s.

 

FICO credit score are calculated as follows:

  • 35% affects Payment History.
  • 30% affects Utilization/Amount you owe.
  • 15% affects Age of Credit.
  • 10% Mix of Credit.
  • 10% affects Inquiries
Effective ways to manage your Debt-to-Income Ratio

Debt ratio is the difference between the amount of debt you have accumulated versus the amount of money the credit card has authorized for you to use, or your credit limit.

 

The difference is your debt ratio. This can also be referred to as revolving (credit card) credit you have available. If your credit limit is $6,000 and you have charged $3,000 on the card, your debt ratio is 50%.

 

Debt ratio accounts for 30% of your FICO score, which makes it the second highest factor the credit agencies take into account when looking at your credit.

 

Here are a few tips for you to make sure your debt ratio is not a drain on your credit score:

 

Maintain Your Total Credit

Don’t ever close credit cards if you can avoid it. The more cards you have open, the higher your total of available credit. Credit calculating software takes your TOTAL available credit versus TOTAL debt into account. Closing a credit card will decrease your overall available credit without decreasing your debt.

Keep your debt even across your credit cards. It is better to have 4 credit cards with 20% debt ratio, then 1 card with 80% ratio and 3 cards with no debt.

 

Know Your Limits

Keep the balances on your credit cards as low as possible. Aim to keep all of your balances below 10% of the credit limit on that card.

 

The FICO software ranks your credit debt based on levels. If your credit card debt is more than 75% of your credit limit, it will cause serious damage to your credit score. The next limit begins at 50%, then 25%.

 

If your debt is high and approaching that 75% mark, call your credit card company and request an increase of your credit limit.

 

 

Check Your Credit Report Regularly

Look at your credit report to ensure the credit card companies have accurately reported your credit limit. If they haven’t reported your limits, the FICO software will read all of your cards as maxed out further causing a negative impact on your credit score.

Report any errors on your credit report immediately. The sooner errors are corrected, the better.

 

Maintain communication with your credit card company. Call them if there are suspicious charges on your account or if you need to make adjustments to your payment schedule.

 

By maintaining your debt ratio, you can ensure your credit score is as high as possible. While a solid debt ratio alone is not the only element involved in the calculation of your FICO score, it is a significant portion.

4 C’s to Qualify for a Home Mortgage

When deciding whether to make a mortgage loan, lenders evaluate the four Cs:

 

  1. Capacity to pay back the loan. Lenders look at your income, employment history, savings, and monthly debt payments, such as your minimum credit card payments and other financial obligations, to make sure that you have the means to take on a mortgage comfortably.

 

  1. Capital. Lenders consider your readily available money and savings plus investments, properties, and other assets that you could sell fairly quickly for cash. Having these reserves proves that you can manage your money responsibly and have funds, in addition to your income, to pay the mortgage.

 

  1. Collateral. Lenders take into account the value of the property and other possessions that you’re pledging as security against the loan.

 

  1. Credit. Lenders check your credit score and history to assess your payment history and overall management of debts. Even if you don’t plan to buy a home now, it’s always a good idea to build and maintain strong credit. Landlords often check it to make sure that you can pay the rent. It’s also important if you want to apply for a mortgage or other credit lines in the future, such as a student loan, car loan, or credit card.
Request your Free Annual Credit Report

It is imperative that you evaluate your credit report at least once per year. To show how important this task is to a solid financial standing, the Fair Credit Reporting Act requires the credit bureaus to provide consumers with one free credit report per year.

 

Request your FREE annual credit report by clicking the link below. After receiving reports, if you have some concerns regarding the accuracy of the information listed, please contact us at 225-412-4698 for professional assistance.

 

Learn More: annualcreditreport.com

Links We Love

 

Free Personal Budgeting Tool: www.everydollar.com

 

Federal Trade Commission: www.ftc.gov

 

Mortage calculator with taxes and insurance: bankrate.com

 

Client Portal: creditstatusnow.com

 

The Credit Score Queen: thecreditscorequeen.com

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