Understanding FICO Scores – How Your Credit Score Is Calculated

Bad Credit, Credit Education

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FICO Score

FICO stands for Fair, Isaac, and Company – and is a company based in San Jose, California, focused on credit risk and rating services. Over time, the FICO score has become the “de facto” standard for rating the credit risk of individuals throughout North America, including the United States, Mexico, and Canada.

In Canada, the basics about FICO scores are the same as they are in the US – and FICO scores are offered for free by both Equifax and TransUnion. But many people don’t understand what, exactly, goes into a FICO score. A higher number is better, obviously – but how are the numbers calculated?

In this article, we’ll take a deep look at FICO scores in Canada, and explain how they’re calculated – along with what you can do to improve your credit score, even if you have bad credit. Here’s how FICO scores break down.

NOTE: The importance of different categories may vary, depending on the overall information in each individual’s credit report. This article is intended only as a general guide, not as financial advice.

35% of FICO Score – Payment History

This is the primary factor in establishing your FICO score. The first thing that any lender (whether you’re financing a used car or trying to buy a house) will look at is your payment history.

The reasoning behind this is simple – if you have been regularly paying all of your debts, and have never missed a payment, you are probably not going to be a high-risk borrower, and financial companies are more likely to do business with you, and offer you great rates on loans.

The opposite is true as well – if you have a pattern of neglecting your debts and missing payments, your payment history will reflect that accordingly, and your score will go down.

Some account types tracked include:

  • Credit cards
  • Retail accounts
  • Installment loans
  • Mortgages
  • Finance company accounts

30% of FICO Score – Amounts Owed

This is the next most important factor in determining your FICO score. The total amount of debt burden that you have is crucial to determining your overall credit risk. It’s important to note that the total amount of debt isn’t that important – what is important is your credit utilization ratio.

Here’s an example: Person A has a credit card with a $10,000 limit, and has a $5,000 balance that he is paying down monthly at a rate of $1000/month, while Person B has a credit card with a $5000 limit, and has $4,000 that he is not paying down – he’s just making mandatory minimum monthly payments.

In this case, Person A will have a better credit utilization ratio – he is only using 50% of his available credit, and is paying it down at a reasonable rate, whereas Person B is using 80% of his available credit, and is not showing an ability to pay it down.

In essence, high levels of debt with a low credit utilization ratio could just represent the ownership of several large loans which are being repaid without issue, and lead to a better FICO score, while high levels of debt with a high credit utilization ratio represent a person having difficulties repaying what they owe – leading to a lower FICO score.

15% of Fico Score – Length of Credit History

Having a longer credit history makes you a more attractive borrower, especially if you have a good history of repaying what you owe.

Having a shorter credit history isn’t necessarily a dealbreaker – but it can lead to a slightly lower score, even if you are good about never missing payments or paying your bills late.

Credit history length takes into account how long ago each individual credit account was established, which ones are active and inactive, and the average age of all of your accounts to come up with a comprehensive length of credit history calculation

10% of FICO Score – Credit Mix

Having a good mix of credit is also a positive factor in your FICO score. Having a mix of credit cards, installment loans, retail accounts like auto loans and mortgages, and so on increase your attractiveness as a borrower – it proves that you are able to manage your finances over a large variety of different instruments.

10% of FICO Score – New Credit

Despite the fact that having a reasonable number of credit accounts established can help your FICO score in the long term, new credit accounts can actually damage your credit in the short term, especially if you don’t have a long credit history.

Opening multiple credit lines in a short time represents quite a bit of risk, and this risk is compounded among individuals with a short credit history.

So if you’re trying to build up your credit, don’t go overboard when opening new lines of credit. Not only do you risk damaging your credit score, you risk failing to repay if you use these credit instruments incorrectly – further damaging your score.

Great FICO Score? Bad FICO Score? Need A Car? Come To Ride Time Today!

You need to understand your FICO score – and having a higher score is always better when it comes to getting financing on a car.

However, your FICO score is not the be-all end-all of your lending opportunities. Even if you have bad credit and a low FICO score, you can get great financing terms on a fantastic used car at Ride Time.

Our network of specialized lenders can guarantee you a reasonable rate on your car, as long as you have a valid Canadian driver’s licence, a monthly income of $1500/month before deductions, and have held a job for over 3 months. If you can provide us with these three items, we’ll work with you tirelessly to find the perfect used car for your needs, and your financial situation.

So read our above article, understand your FICO score, and understand that though a higher score is better, it isn’t essential to financing a great used car – as long as you shop at Ride Time!


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