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Credit Risk Management

By : Randhir Singh, Assistant Manager, Analytics, HSBC DPI
Industry : Private Banking/Wealth Management Functional Area : Valuation
Activity:  1 comments  335 views  last activity : 07 06 2010 20:18:04 +0000

When you’re looking at your credit report, depending on which of the three companies provided it to you, you may see your FICO score — a number between 300 and 850. But it can be difficult to understand just how that number corresponds to your credit score.

Your FICO score, or credit score, is based on the information in your credit report. It’s a sort of analysis of your payment history, ability to pay off credit and comparison to how other people have done in similar situations, all rolled into one little number. And that one little number can mean a big difference if you’re looking for a mortgage or other credit.

The problem that you may run into with a low FICO score is that FICO scores are all about making lenders’ lives easier. No matter whether you had some sort of extenuating circumstance that led to a low FICO score, you won’t even have the option of explaining it away to a lender. Instead, it’s up to you to raise your FICO score.

Unlike credit reports, which can show past mistakes, FICO scores can be relatively easy to repair. While you can’t raise your score overnight, you can bring it up. And when a lender looks at a FICO score, rather than your credit history, they don’t see how long your FICO has been at a certain level. In a way, FICO scores can even the playing field.

To improve your FICO score, you will need to take some steps to generally improve your credit:

  • Make paying your bills in full and on time your priority. Late payments and outstanding bills significantly drag down FICO scores.
  • Pay off credit cards — but don’t close your cards after you’ve paid them off. A high ratio of credit available to credit used can raise your FICO score.
  • Give it time. You’ll need positive credit history to bring up your score, which is one of the reasons it’s hard for young people to get high FICOs.
  • Don’t apply for any new credit. Sure, you’ll need to apply for that mortgage you’re aiming for, but limit your other credit: no new cards or accounts. The folks figuring FICO scores assume that if you’re looking for a lot of credit at one time, you’re in some sort of financial difficulty.

Lastly, building up a respectable FICO score can take some time. If you’re planning some big purchases in the future — like a home, start now! It may take a year to get your credit to the level you’ll need to get a decent mortgage. And once you’ve got your FICO up, make the commitment to keep it up. Keep up on your bills and financial commitments to keep away worries about FICO scores and credit reports.

1 comments on "FICO Versus Credit Reports"
  Commented by  Hardik Patel, Team Lead (Staffing and Recruitment), Rishabh Softwares Pvt. Ltd. / Rishi Infotech Pvt. Ltd    | 07 22 2008 14:59:36 +0000
good one.
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