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Learn About Credit 101: Lesson 2 of 4
What is a Credit Score?

Whether you are applying for a credit card or looking to buy a home, lenders will want to know what kind of risk they are taking by lending you money. Your FICO credit score is what most creditors will use to determine this risk. Your FICO score is the median score of the ones that the three major credit bureaus provide. FICO scores range from 300-850; a higher score is better. There are several factors that affect your score on this scale.

Percentage Breakdown of your FICO Score:

Payment History (35%): Lenders want to know if you have actually paid back your credit accounts in the past. If you defaulted before it will appear that you are more likely to default again. Now a few late payments aren’t going to destroy your score. Alternatively, things such as bankruptcy, tax liens, judgments, lawsuits, and foreclosures will affect your score very seriously.

Amounts owed (30%): Your percentage of available credit is also very important. Owing money doesn’t always mean you will have a lower score, but if your credit limit is $5000 and you owe $4500 it can appear that you are over extended and that you are more likely to make late payments or miss them altogether.

Length of credit history (15%): Your FICO score examines this portion with three different sets of criteria. (1) The age of all your accounts (2) the length of specific accounts and (3) how long it has been since you use each account.

New credit (10%): When looking at a credit report, opening too many credit accounts in a short period of time appears like a very large risk. It’s basically like telling lenders, “I am desperate for money,” or “I am frivolous with my spending.” Inquiries, new credit accounts, and time play a huge role in this portion of your score.

Types of credit used (10%): In this portion of your score credit cards, retail accounts, installment loans, mortgages, and finance loans are all considered.

Your FICO score will not include information like race, color, religion, national origin, age, sex and marital status.

You don’t have one single credit score, you actual have many and they are constantly changing. New and old information is constantly being added and removed so your credit score can be expected to vary. This factor can affect consumers negatively and positively. If you are not monitoring your credit and making credit conscious decisions, your credit score could go from excellent to average or poor with just a couple mistakes. Another thing you must realize is these scores were not created for you to understand them easily. These formulas were designed for lenders to get an unbiased, accurate description of your current financial situation.

How NCF Can Help

When you hire NCF our attorneys will work on removing negative items from your credit history. We will also show you how to maximize your debt ratio score, even if paying off credit cards is not an option. Our attorneys have methods of increasing your credit history with positive rated accounts that will improve your score. We can also work on removing credit inquiries from your credit report. We want to not only repair your current situation but educate and prepare you to make decisions that will positively affect your credit score in the future.