The majority of consumers are starting to realize the importance of a credit score. They are well aware that the score is a number that determines their suitability for a financial product. Savvy consumers even know two or three different ways to improve their scores and enhance their rankings. These people know that they must obtain a score before completing an application so that they can see where they need work. Are they getting the right score, however? Are they obtaining the number that holds merit in the consumer credit world, or are they reaching for a cleverly named imposter?
The FICO Score Is the Golden Book of Credit Decisions
The majority of credit card companies, banks, private lenders and other organizations uses the FICO score to rate their potential customers. The F-score has been around for decades, and it consists of a structure that measures the consumer’s payment history, balances, new credit accounts, length of credit and type of credit. The F scoring system starts at 300 points for the poorest credit profile, and it maxes out at 850 points. Creditors make decisions based on an applicant’s placement within that number range. The F system is legendary and convenient. Therefore, most businesses use it as their only credit reference method.
What Is a FAKO Score?
The success of the FICO system was so great that other companies started implementing their own systems. Each of the three major credit bureaus developed its own special adapted version of the FICO scoring system. Experian calls its system the Scorex system. Equifax incorporates the Beacon score. TransUnion has its own Transrisk scoring system. Consumers who did not appreciate the new systems started referring to them as FAKO scores. People who reference such scores as FAKO scores have derogatory intentions.
Which Score Should a Consumer Have?
Since most creditors use the FICO system, a consumer would want to weigh his or her F-score more heavily than a score generated by an alternative method. Small portions of businesses do use Beacon scores, but a consumer who only pays attention to a Beacon score is limiting himself or herself significantly. The old F system of calculating credit worthiness is already an accepted an adopted system. Therefore, obtaining other credit scores is not likely to help a debtor. At best, such would confuse the person and make recovery difficult.
How Credit Score Is Calculated By FICO
F-style uses a pie chart to explain its structure. The consumer’s payment history takes up the largest portion of the pie, which means that it is the most important factor in credit health. A consumer’s payment history makes up 35 percent of the F-score. Balances come in at a close second to payment history at 30 percent. Consumers with high balances stand out to debtors as possible risks.
The length of a person’s credit history accounts for 15 percent of the equation. Therefore, having multiple new accounts can bring a person’s credit score down significantly. However, each month of age that a new account accumulates will increase the person’s credit score slightly. New credit is worth 10 percent of the equation. A consumer’s credit score will drop immediately upon the opening of a new account. However, the high available balance might counteract the deduction from a new line. Balance is three times more powerful than new accounts are. Therefore, a new account with a super-high balance can skyrocket someone’s consumer score.
The F-score includes the types of credit accounts that a consumer has. These count for 10 percent of the equation. They factor in the presence of revolving accounts, installment accounts, open accounts and more. Revolving accounts and installment accounts are the most powerful because they expose a consumer’s true nature. The lender can get an accurate view of a persons’ spending habits by reviewing revolving account activity.
The figure that bureaus and lenders obtain from this system places people into different categories of risk. A person who has an F-score of 750 points or more can obtain almost any product that he or she desires. Alternatively, consumers with F-scores of less than 500 are not likely to obtain approval for unsecured products without paying triple interest charges.
Tips for Improving Credit Ranking
A consumer can develop an ironclad plan for total consumer wellness by using the F-system as his or her guide. For example, making payments early and making double payments can boost a credit number rather quickly. The debtor is touching two highly regarded credit-scoring areas at the same time with that strategy. Allowing credit items to remain open for extending periods can also boost credit rankings in the long run. Another tip for improving one’s credit profile is reducing inquiries. Inquiries do affect credit profile if a person performs them too much. Finally, the best financial products for improving score are revolving accounts with high balances.
How to Get a Credit Report
A consumer can obtain a copy of his or her credit report using several methods. The first method is the recent denial method. Credit bureaus such as Experian will issue one credit report to a consumer who has been turned down for assistance in the past 60 days. Other credit bureaus have similar offerings.
A person who just wants to obtain the score can sign up for credit monitoring for a free score. Credit monitoring services can come in handy during times when the consumer does not want to take a risk. Credit monitoring software can alert a consumer at the first sign of any changes in the score. Some credit monitoring software versions have anti-fraud properties. Advanced programs will send information to a debtor if someone tries to apply for credit using his or her name. The debtor can then decide if he or she would like to take legal steps to reprimand the fraudulent party.
Using the Right Score
Some variations of the F-score are more detailed than the traditional F-system is. For example, the Beacon scoring system uses factors such as address changes and job changes in its scoring calculations. This information may or may not improve the accuracy of credit scoring. The Vantage system works on a score range of 501 points to 990 points, and it contains grade letters. The positive aspect of the Vantage system is that it does not deduct points for lack of credit history. However, the bottom line is that the F-score is the most widely used tool by a multitude of consumers. Therefore, the F-score is the right score for reviewing, managing and improving one’s credit profile.
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