Nerd News

Last year, with the financial crisis, I'm sure everybody was aware of their credit score and their credit rating. I was made aware of my credit score because I was applying for a mobile phone line. I didn't know that mobile phone companies also make credit checks. Anyways, I made a research through Wikipedia and here's what I've gathered about credit scores.

Basically, a credit score is a numerical representation of a person's credit worthiness. Here in the US, there are many different methods of calculating credit scores but the most popular one is the FICO score. The others are NextGen Score and VantageScore but both are very similar to FICO and FICO score is still the widely used credit score in the United States.

Although the exact formulas for calculating credit score is a secret, FICO has disclosed the components of what makes up a person's credit score: 35% payment history and when a person is late in paying bills, it could cause their FICO score to drop; 30% credit utilization which is the ratio of current revolving debt to the total available credit limit, lowering your credit utilization ratio will improve your FICO score; 15% length of credit history, as a person's credit history ages, it will have a positive impact on their score provided that they pay their bills; 10% type of credit used, having different kinds of credit, like installment, revolving,etc, will have a positive effect on your FICO score; 10% recent search for credit/amount of credit obtained recently, multiple credit inquiries of a consumer who wishes to open new credit can hurt a persons' FICO score.

Now that you know the components of a FICO score, doing simple things such as paying your bills on time will improve your score. Although Americans can get a free credit report within a 12 month period through annualcreditreport.com, we have to pay for viewing our credit scores.

There are some websites that offer to increase your credit score. What they do is give you a huge amount of credit limit to lower your credit utilization ratio, of course, you can't exactly use this credit limit but they will submit to credit bureaus that they have opened a large amount of credit limit to your name so that your credit utilization ratio will decrease.

But consumers should be wary because FICO has introduced a new version of FICO score which is FICO 08 which should significantly limit the ability of consumers to tamper with FICO score through the above mentioned tactic.

Posted by sexy_geek at 9:32 PM