The way lenders determine the terms and rates of the loans the give you is by looking at your FICO credit score. The FICO score is a financial model developed by Fair Isaac & CO. which takes into account various parameters and determines the financial risk a lender takes when landing money to the borrower. Lenders look at the financial history of the borrower and his credit score to determine how much they will charge for the loan. You need to make sure your credit history is favorable and more often than not you need to take action to increase your credit score.
Parameters Determining Your FICO Score:
Scores in this model are between 300 and 850. People with scores closer to 850 have higher credit standings and therefore present a smaller risk to the lender so they will get lower interest rates and better terms than those with scores closer to the 300 mark. Scores higher than 620 are considered safe by most lenders.
The scores are calculated in the FICO financial model using the following parameters and their relative weight:
- -35% is calculated by taking into account past payments and way credit was used.
- -30% determined by outstanding amounts with all lenders
- -15% is figured by considering how far back the credit history goes.
- -10% is figured by how many applications and credit inquiries were made in recent time
- -10% of the score is determined by the types of credit that was used like loans, credit cards, leases etc.
Lenders like to see high FICO credit score because this model takes into account all the above factors. Anyone who does not have lot’s of cash and savings at their disposal, need to get lenders to provide them with the needed funds. In order to get the lenders to approve the credit and loans at favorable terms you need to have a high credit score. In case your score is not so high you need to embark quickly on a task of improving your credit history which will than result in the increase of your credit score. The normal tendency is to seek professional help to clean the negative items in our credit history in order to increase our credit score. The available options you have are outlined bellow and usually depend on your personal preference and good understanding what each option means.
Ways to Increase credit score:
1. CREDIT REPAIR AGENCIES is the first choice we usually make when not checking carefully the other alternatives. You need to know several important facts on this option first. They help by assisting in this new and unfamiliar task by providing all the necessary information to clear the credit history. With their knowledge and experience they can communicate in good terms with the creditors on our behalf. Most of the work in clearing credit history is in providing the necessary information and providing the supporting documentation and it has to be done by you. Also keep in mind that numerous agencies are fraudulent and you need to be very careful. Also remember that this option will cost you more than the other alternatives.
2. MANUALS AND e-BOOKS FOR THE DIY: Guidebooks and instruction manuals that show you how to clean your credit history and how to increase your credit score by following detailed instructions and taking specific actions.
3. Less known but extremely effective way is to use CREDIT REPAIR SOFTWARE like Credit Repair. Magic that provides the needed information and structured assistance in all the necessary tasks to clean your credit history. It generates for you the repeated letters and keeps track on all the activities. With this tool you manage it yourself.
If you choose to use a Credit Repair Agency you owe it to yourself to make sure you chose the right one. Not doing so can result in selecting a fraudulent credit repair agency that will take your money and leave you in worse situation than when you started. Make sure you verify and check the background of the agency of your choice before you start. Remember that the FTC advices consumers to take control of the process and do it themselves and with the DIY tools and software it can be done safely and inexpensively.