One of the most confusing aspects of your finances is credit. There is good credit, bad credit, big credit, and small credit. For most people, all these terms sound like a garbled rhyme. What is your FICO score?
There is a ton of information available online about how to fix credit score but the truth is one kind of credit is different from another.
Credit is another term for a loan, and as everyone is aware, loans are of various kinds. Each type affects your credit score in a different way. Before you figure out how to repair credit score, you must understand the different types of credit.
Factors that affect FICO score
The measure of a person’s credit risk is called the FICO score, originally invented by the data analytics company Fair, Isaac, and Company in 1956.
The FICO score is the standard measurement of a person’s credit in the United States. Your FICO score is what lenders take into consideration when you apply for a loan.
Credit can be divided into good credit and bad credit. If your credit score is above 600 it is called good credit. Anything below 600 is usually not sufficient to qualify for a loan. In such a case you need to choose an option meant for people with bad credit or increase credit score.
Can a person have zero credit score? Yes, of course. If you have never taken any kind of loan or credit cards, your credit score is practically zero, and lenders have no way to certain if you are capable of paying off your debts on time. That is the reason why building credit is necessary even if you are not considering a loan.
Types of credit
The different kinds of loans can be classified into two broad categories: revolving credit and installment credit.
A classic example of revolving credit is any type of credit card. There is no fixed amount or interest rate although you will be restricted to a credit limit. On the other hand, installment credit involves any kind of a major loans like home mortgages or auto loans. The loan amount is fixed and never changes. Monthly interest needs to be paid on the amount borrowed.
Regardless of the type of credit you have it affects your FICO score significantly. The various components that make up your FICO score are:
- Payment history
- Level of debt, which is the ratio between credit balance and credit limit
- Types of credit
- Number of credit checks
- Age of credit, which is how long your accounts have been open
The more diversity you have and new types of credit the better your chances of being approved for a loan. Remember that it’s never too late to improve FICO score. Any salient credit repair service like EZ Credit Repair Now will easily handle all the hard work and clean up your credit reports!