What is a FICO Score and How do I Make it Work for me?
In order to apply for a mortgage, car loan, credit cards, or any other type of financial product, lenders look at your credit history which includes things like your balance and payment history on loans and cards. The FICO score they take into account is a three digit number that ranges from 300-850. A higher number signifies that the individual has a reliable repayment history. Lenders will use this information to determine whether you are likely to repay the financial product.
Understanding how your FICO score gets calculated can help you make smarter decision about your finances in the future and work towards getting better credit or maintaining it with timely payments.
How does the lender get your score?
Your FICO score is pulled from the information in your credit report. There are three different credit reporting agencies in the United States including Equifax, Experian and TransUnion. The information that you receive from each agency depends on how you report it. If your information is incorrect, you should communicate this to the company so they can correct it on their end and not negatively impact your FICO score.
Do I have a FICO Score?
Everyone has a FICO score whether or not they have been reported to one of the three credit reporting agencies. The FICO score is calculated based off the following items:
Credit history - The length of time you have had credit, the number of accounts you have and what your loan and account balances are. Payments - How often you are making your payments on time and what type of payment terms you are using such as cash, insurance or a line of credit. Payment History - Your payment history goes into further detail about your payment patterns such as how long it has been since you made a payment late or how many times in the last year you made a late payment. Amounts Owed - How much money do you owe to each creditor including how much each account has borrowed.
What Does My Score Mean?
Your score ranges from 300 to 850 and the higher the number is, the better your credit history. The scoring range goes as follows:
300 - 549 - Bad Credit 550 - 699 - Below Average Credit 700 - 749 - Average Credit 750 - 850 - Good Credit
How Do I Improve My Score?
There are certain circumstances that can limit your score and you should work to avoid them. For instance, if you make an application for credit in a short period of time without making payments on your current loan or credit card balances, it could hurt your score.
To improve your score, you can:
Make your payments on time
Make sure the information in your credit report is accurate and complete and fix anything that is not accurate or complete. If there are accounts that you have closed and no longer show up on your report, but still appear as current obligations, contact the creditor to have them removed.
Keep balances low on all of your credit cards while keeping high account limits. This will help maintain a high available credit line. You can work with one or multiple creditors to raise the limit on your current balances instead of applying for a new card with a higher limit if possible.
Have balances on credit cards that are paid off at least 30 days in advance of making any payments.
What information should go into my Credit Report?
You should also make sure that your credit report is correct. If you believe there are errors or inaccuracies, you can work with the creditor to fix the issue. If there are problems in your credit history, you might want to contact one of our experienced student loan lawyers regarding student loan default, which could have a negative impact on your FICO score. To learn more about the consumer reporting agencies and how they operate, visit: https://www.ftc.gov/credit-card-student-loan-action
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Conclusion
Student loans can have a negative impact on your credit if you do not pay them on time. Your credit score will reflect any missed payments, late or otherwise and in the event that you default on your student loans, all of your accounts will be put into collections. A student loan could be forgiven if you work for a non-profit organization or government entity for ten years and then cease to work for the organization. However, there are other provisions regarding qualified forgiveness and depending on your situation, it might not be available. You should contact our experienced Boston student loan lawyers to figure out whether or not this option is available to you in order to take advantage of this benefit.