| Every one knows how FICO or the Fair Isaac | | | | dividing your credit utilization over the |
| Corporation scoring systems work. There are | | | | total credit limits. For instance, if a |
| however many other types of systems employed | | | | person has total credit limits of $80,000, |
| by lending companies when computing one's | | | | and he used $60,000, then his debt to credit |
| credit worthiness. But whatever credit risk | | | | ratio is 75%. An ideal percentage should fall |
| system your lender uses, it is important to | | | | between fifty to sixty percent. Making it |
| always keep a close eye on your credit risk | | | | above sixty increases your chances of |
| ratio. | | | | becoming a credit risky borrower. |
| | | | |
| Credit risk ratio is the percentage or the | | | | The third factor is the length of credit |
| likelihood that lenders will lose because of | | | | history. This is fifteen percent of your |
| a borrower's inability to pay on time. Or, in | | | | credit score. Credit scorers like FICO are |
| other words, it is the odds that banks, | | | | not mindful of how long you have owed money |
| lending institutions, or credit card | | | | from someone, but they are more interested in |
| companies will say "NO" to your credit | | | | your relationship with your lender. If you |
| applications. | | | | have used your credit and stayed with the |
| | | | same credit card company for that long, that |
| A credit risk ratio is not a factor; rather, | | | | makes you more as a credit worthy borrower. |
| it is a result of your credit performance. | | | | |
| Just like what was mentioned earlier, the | | | | Ten percent of the remaining twenty percent |
| FICO has its own way of scoring one's credit | | | | is based on the combination of credit types |
| worthiness or the ability to pay for his | | | | you use. Basically, there is the consumer |
| credit obligations. The mathematical formula | | | | finance, revolving, an example is credit |
| is secret least likely disclosed, though FICO | | | | card, and installment. If you vary your |
| reveals the factors that may spell difference | | | | credit types, you have a big chance of |
| between being a credit worthy and credit | | | | reversing your credit risk ratio. |
| risky borrower. | | | | |
| | | | The other ten percent comes from your |
| The first factor is the promptness of your | | | | resourcefulness. FICO awards a full ten |
| payment. That makes up thirty five percent of | | | | percent to borrowers who are confident to |
| your total FICO score. The earlier you pay | | | | look around for the best interest rates. |
| the bills, the better. Also, you need to know | | | | |
| that FICO puts more focus on your recent | | | | Interestingly though, your FICO score will |
| bills, although your past late payments will | | | | not guarantee you of having a complete credit |
| also reflect on your present report. More | | | | worthy status. Take for example, a person's |
| importantly, a credit card account that has | | | | current employment or income status. Even if |
| been handed over to collecting agencies will | | | | he has gained an attractive FICO score, but |
| definitely hurt your credit score. If you're | | | | presently has no means of earning income, he |
| not doing well in this 35-percent factor, | | | | will still be labeled a credit risk borrower. |
| then you are basically raising your credit | | | | That person's credit applications will most |
| risk ratio. | | | | probably still be denied. High credit risk |
| | | | ratio is not something you would want to |
| The other factor is the debt to credit ratio. | | | | earn, so be extra watchful when you use your |
| This accounts for thirty percent of your | | | | credit cards. |
| total FICO score. This rating is obtained by | | | | |