Background and credit check for landlords | Background More info: wikipedia link:
Background and credit check for landlords | Background Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. Although the exact formulas for calculating credit scores are secret, FICO has disclosed the following components:[4][5]
35%: payment history: This is best described as the presence or lack of derogatory information. Bankruptcy, liens, judgments, settlements, charge offs, repossessions, foreclosures, and late payments can cause a FICO score to drop.
30%: debt burden: This category considers a number of debt specific measurements. According to FICO there are six different metrics in the debt category including the debt to limit ratio, number of accounts with balances, amount owed across different types of accounts, and the amount paid down on installment loans.[6]
15%: length of credit history aka Time in File: As a credit history ages it can have a positive impact on its FICO score. There are two metrics in this category: the average age of the accounts on a report and the age of the oldest account.
Background and credit check for landlords | Background
10%: types of credit used (installment, revolving, consumer finance, mortgage): Consumers can benefit by having a history of managing different types of credit.[7]
10%: recent searches for credit: hard credit inquiries or "hard pulls," which occur when consumers apply for a credit card or loan (revolving or otherwise), can hurt scores, especially if done in great numbers. Individuals who are "rate shopping" for a mortgage, auto loan, or student loan over a short period (two weeks or 45 days, depending on the generation of FICO score used) will likely not experience a meaningful decrease in their scores as a result of these types of inquiries, as the FICO scoring model considers all of those types of hard inquiries that occur within 14 or 45 days of each other as only one. Further, mortgage, auto, and student loan inquiries do not count at all in a FICO score if they are less than 30 days old. While all credit inquiries are recorded and displayed on personal credit reports for two years, they have no effect after the first year because FICO's scoring system ignores them after 12 months.[citation needed] Credit inquiries that were made by the consumer (such as pulling a credit report for personal use), by an employer (for employee verification), or by companies initiating pre-screened offers of credit or insurance do not have any impact on a credit score: these are called "soft inquiries" or "soft pulls," and do not appear on a credit report used by lenders, only on personal reports. Soft inquires are not considered by credit scoring systems.[8]
These percentages are based on the importance of the five categories for the general population. For particular groups — for example, people who have not been using credit long — the relative importance of these categories may be different[4].
The makeup factors are limited to the individual's past (and continuing) behavior on credit. Contrary to common misconception,[9] other financial factors such as age, employment status, asset, income, etc. are not accounted. It, however, does not prevent lenders from asking and accounting these factors for particular lending considerations.
Getting a higher credit limit can help a credit score. The higher the credit limit on the credit card, the lower the utilization ratio average for all of a borrower's credit card accounts. The utilization ratio is the amount owed divided by the amount extended by the creditor and the lower it is the better a FICO rating, in general. So if a person has one credit card with a used balance of $500 and a limit of $1,000 as well as another with a used balance of $700 and $2,000 limit, the average ratio is 40 percent ($1,200 total used divided by $3,000 total limits). If the first credit card company raises the limit to $2,000, the ratio lowers to 30 percent, which could boost the FICO rating.
There are other special factors which can weigh on the FICO score.
Any money owed because of a court judgment, tax lien, etc., carries an additional negative penalty, especially when recent.
Having one or more newly opened consumer finance credit accounts may also be a negative.[10]
Ranges
There are several types of FICO credit score: classic or generic, industry-specific scores (bankcard score, auto score, mortgage score, personal finance score, and installment loan score), XD score, collection score, and NextGen score. The classic or generic FICO credit score (named FICO credit score) is between 300 and 850, and 37% of people had between 750 and 850 in 2013, and 56.8% had between 700 and 850 in 2017.[11] According to FICO, the median FICO credit score in 2006 was 723 and 711 in 2011.[12]
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