FICO scores and everything you need to know.
Getting a loan might be a challenge for first-time borrowers and those who have bad credit scores. There are a lot of financial institutions that do deep credit checks before approving any application.
So, what if you have several loans and are experiencing payment difficulties? What if it’s your first time and you don’t have a strong credit score to rely on?
You can still try to submit loan applications and take the chance of getting denied, provided you know of the factors that will affect your records.
Speaking of loan factors, FICO governs the entire system that lenders use to approve you. By being aware of what FICO scores are and the impact of it, you will know the difference when you got accepted and refused from your credit application.
Whether it is a mortgage for your home and car or personal loans, you will know how important your FICO scores are. After understanding what it is, you may want to consider improving your scores so lenders can find your application attractive.
Lenders are simply looking for the least risky applicants to approve. So let’s explore how to leverage your FICO score to your advantage.
An attractive borrower receives more credit approvals than rejections. That is one thing you should aim for if you want to get your loan approved.
Now, there are things you need to consider understanding and maximize your FICO scores. In this article, you will know more about the effective and powerful tips on how you can improve your credit scores.
What is a FICO Score?
Before anything else, know what FICO score is. Actually, it is some kind of credit score made by the Fair Isaac Corporation. Lenders use this to test borrowers including other information making up the credit reports.
This evaluation will help lenders know the level of credit risk and whether to extend the loan to this specific borrower.
It can apply FICO scores to 5 major areas: payment history, the current level of indebtedness, length of credit history, types of credit used, and new credit accounts.
FICO is a software useful for both consumers and businesses. It was known before as the Fair Isaac Corporation.
It changed its name to FICO in 2009 and is now the best in the market to produce the credit scores so that financial institutions will have something to use when deciding to approve, reject, and extend the credits of the consumers.
Know that the FICO is not a credit reporting agency such as TransUnion, Equifax, and Experian. However, it receives and provides data to these agencies to do its main function.
FICO scores can range from 300 to 850. If your score is 650 and above, this is already a good credit rating. If you score 620 and below, it is hard to find and get loans at good rates.
To determine these scores, lenders usually take into consideration your income, your job tenure, and the credit you are requesting for. They get FICO scores from special formulas including your non-payment of loans, for instance, your car loan.
Your score might determine if you favor paying your mortgage first or your credit cards and so on. However, it’s not like they will refuse you for other loan types once they have rejected you from your other loan applications.
What are the components of your FICO scores?
Your FICO scores have different components broken down into 5:
Payment history – this is usually the record of your payment, whether it is your credit card payment, car loan payment, home mortgage payment, etc. This will allow FICO to go through your habits of paying your loan and the amount you pay.
The current level of debt – this can be your total debt. This FICO gives how many types of loans you are paying.
For example, if you have a car and home loans, that’s equivalent to 2 loans and the total will be your current level of debt. Types of credit used – this is the credit you get from a lender.
Length of credit history – FICO uses the length of your credit history to know the years you have been borrowing. New credit – this will record your most recent credit from different lenders.
What are the different versions of FICO Scores
FICO scores have different versions too, so that to cater to all the needs and demands of lenders. Today, lenders can access up to 53 distinctive versions of FICO score reports.
This just means there is over one type of credit analysis. Your lenders can choose whatever they prefer to support their client base.
Even if they come from different industries like banks, retail, loan companies, or automotive, there is a suitable report for them.
How do you maximize your FICO scores?
Now that you know what FICO score is, its components, and its types, it’s time to get to the point. There are different ways to maximize your FICO scores so you can get more institutions to lend you money.
Having a high FICO score is essential, especially if you are aiming to get major loans such as car and house mortgages.
Even if you have bad credit records or no history at all. There is still a chance for you to get a loan! Don’t waste this chance. Here are a few tips to keep you going.
1) Never apply for unnecessary loans
Remember not to apply for the loans you don’t need. Only get the funding that will benefit you big time. If financial institutions see that you have many unsettled loans, for example, home loans, credit cards, car loans, and credit cards.
Lenders will think it will be impossible for you to pay for several credits, especially if your income is a minimum. If you want more lenders to approve your application, take one loan at a time.
Pay your previous loans first before you top it up with another.
2) Always pay on time.
Keep a list of your due dates. If you have several loans, it is important that you know well every due so your payment won’t be late.
This may sound easy to do, however, many people are struggling to pay on time for different reasons such as they forget their due dates, they don’t have enough money yet to pay on time, or they refuse to do it.
If you are aiming for a good FICO score, never forget about this. As much as you can, prepare your payments earlier than the due date so you can avoid forgetting about it.
3) Make small payments
While there are borrowers who do big payments one time, we do not recommend it to get your higher FICO scores. It’s still better to make small payments but on time.
If you are paying weekly or monthly, it’s best for you to follow your payment schedule. If you do this, you are not just doing good at making payments; you are also improving your credit history by constantly paying on the right date.
Always go for small payments.
4) Don’t apply for loans
As much as you can, do not apply for credits. Applying for loans frequently will only decrease your FICO scores. Lenders will see your creditworthiness as low if you are always applying for credits.
Again, take one loan at a time and if you don’t need a loan yet, there is no need to get another. Base your application to your needs. You don’t have to get a car loan after paying your previous one.
You need not get a home loan after you have fully paid one. Lenders will see this and this will affect your credit rating badly.
5) Pay off your debt
Last but not least, pay your debt. Do not just make small payments, do not just pay on time, do not just get a loan but aim to pay off your debt too. Full and complete payments make your FICO scores high.
The higher the FICO score, the more lender will let you borrow cash. It’s a good habit as well to pay off your loans first before getting a new one than pay your existing loan with another.
This will help you manage your finances so don’t neglect your responsibilities.
We hope that this list will end your difficulties as a borrower. You deserve a good lender that gives good interest rates. You deserve to prove that you are creditworthy and you can pay your loans.
Use these tips to improve your FICO scores so more lenders will be kind to you. Follow these so your applications won’t get rejected again. And in case you need help, the Credit Agents is here to help you.
Remove all the negative records in your credit report by availing of our credit repair services. Your credit standing will improve and it will be easier for you to get loans with our services.