Understand Your Credit Score
And How It’s Calculated
Moving forward it is important to realize that one understands how their credit score is calculated. First, the agency that controls this number is FICO or Fair Issac Corporation. FICO created credit scores to allow numerous companies to assign risk to making business decisions, i.e. giving you a credit card, car or home loan. Many of us know that their credit score simply because three main credit reporting agencies Equifax, Experian and TransUnion provide it to us when we pull our credit reports.
Unfortunately, how a credit score is determined is a mystery known only by FICO, but the main factors include:
- Payment history, typically the last two years.
- Amount of open credit
- Amount of open credit in use.
- Inquiries into your credit history
Noticeably absent is your income and net worth. These numbers are important, but they do not impact your credit score.
The key thing to understand is that a person’s credit score is probably the most important number associated with them besides social security number. The reason this number is important it because it can impact anything from job opportunities, to renting apartments, insurance rates and the cost at which you borrow money. While, it is impossible to tell you what scores are needed for the aforementioned, you should understand that scores below 700 are not favorable and with the recent credit crisis scores over 750 are now desired. Many of our clients come in at the point where the credit score is already low.
Many missed payments to credit card companies and other creditors have done damage to their score. But the good news is that by eliminating their debts many of our clients get immediately help trying to improve their score. In fact many individuals will see an immediate improvement with the credit scores after filing a bankruptcy.
What is important to understand though is you will have credit card offers, you will be able to get a job, rent an apartment, buy a car and a house despite of the bankruptcy. You should focus less attention on the past and bankruptcy and more on the future, which should include taking all steps necessary to have a high credit score. If you do so, you will find that you will be fiscally responsible and not need future protection under Chapter 7.
Please remember you have eight years until you can file a Chapter 7 petition again from the date of discharge. With a little hard work and diligence you can begin the path to successful money habits.
Call us today for a free consultation and we can go into your personal credit situation.