Understanding Your Credit ScoreFor financial laypeople, grasping the credit ecosphere can seem daunting as most people are not exposed to the technical language on a daily basis. Applying for credit in the form of a loan or credit card may be the first time someone learns their eligibility depends on one's FICO score, or credit score. Hopefully this post can inform and guide a better understanding of what this score consists of and its meaning.
FICO scores allow lenders and other companies to determine the level of risk associated with your likelihood of repaying financial obligations. The rating is a standard associated with creditworthiness for borrowers and is considered the most popular uniform way to determine the creditworthiness of an individual.
Your payment history determines 35% of your score, the amount owed compared to available credit takes up 30%, the overall length of credit history over time constitutes 15% of your score, and credit type and age of credit make up the remaining 20%.
Ranging from 300 to 850, your score is determined by several components. Any score over 740 is considered very good credit. If your score falls under 650 with derogatory marks, then it indicates to lenders that you are at a higher risk of defaulting on your debts, making it harder for a borrower to obtain credit.
If your credit score is suffering, it will impact your financial opportunities, as well as your ability to take out student loans, finance a car, or own a home. If your FICO score less than ideal and you need assistance with your debts, Contact us today at NextStep Financial. We may be able to help.