Free Credit Reports Instantly

Posts Tagged ‘FICO’

One of the most popular methods of calculating a credit score is using the FICO numerical scale. This is done to help put a rating that pertains to various aspects of your credit rating.

What it Means

The credit score scale determines whether or not you have poor, fair, good, excellent, or perfect credit. This is what will established a variety of things, such as how much interest you would pay on a credit card balance or how much of a down payment would be required for a home loan.

It might make or break a merchant’s decision to give you a car loan or to provide you with cell phone or ISP service. It is used to help gauge a variety of financial decisions.

Credit Score Calculation

To sum it up, 620 means good while below that is fair or poor. 723 is considered very good and 800 to 850 is considered perfect to almost perfect. A person with a very high credit score may be thought of as one with “A-1 credit.”

Similar point systems are used by Experian (the Plus score). There also is what is called the VantageScore. You may have heard of these but it is the FICO one that is used most often.

Scoring Factors

Certain aspects of your credit report make up for varying percentages of your credit score. The breakdown is generally as follows:

Payment history-35%
Debt to income/assets ratio-30%
Length of credit history-10%
Types of credit-10%
Number of inquiries-10%

This is subject to change but as of now this is common knowledge among consumers and experts. This is generally speaking the major components of credit score calculation.

When trying to clean up your credit-which sometimes seems such an impossible feat-you have a lot to consider. One of the major concerns regarding this is that pertaining to FICO scores and how loan modification can affect it.

People who have outstanding loans are encouraged to be careful about the decisions they make regarding this matter. Part of this is in knowing what a loan modification is in the first place.

A Simple Definition

A loan modification is the alteration of any financial contract. Usually this would be in the form of reducing interest rates or in the forgiveness (or partial forgiveness) of a loan. Sometimes it could be an extension of the loan’s maturity date.

The Consequences

This is a very complex matter-that of loan modification. It depends highly upon what parts of the loan are being modified or how it is recorded.

Some schools of thought suggest that since a loan modification is listed as a “Partial Payment Plan” on your financial records it would be better than perhaps not paying at all. However, this actually does lower your FICO score.

Avocation is being made by consumers to determine whether this is fair or not-the lowering of a credit score even if a payment is not missed after loan modification. If it still will affect you negatively why bother?

Therefore, although it might be a better solution than continuing to be delinquent on your loans it could still cost you. It often is not considered to be anything more than just a temporary solution to solving credit and debt problems.

If you are not sure whether this solution would be better for you than a charge-off or type of debt forgiveness, ask a financial counselor. A budget or credit counseling may be your best source for this type of information.