Having a good credit score is important for a plethora of reasons. If you are an adult, you know that living is much easier when your credit is not bad. Getting simple things, such as a credit card, is simpler if you have good credit. If you are in need of harder stuff, like buying a house or getting a loan, your credit will also matter. It is that important because it is sort of a passport within the financial world. In case you are clear, you can get a lot of stuff. If you are not, things get a lot more difficult.
If you find yourself with a bad credit score, the news we bring today might cheer you up. Before delivering the good news, we must situate you in the context of how credit scores work. Well, if there are good credit scores and bad credit scores, you must already know that there are companies that are responsible for rating and classifying what is good or bad. That being said, know that the Fair Isaac Corporation is a company that creates the three-digit FICO score. Many people have their credit punctuated by them.
If you are searching for opportunities to have a good credit score, be aware of some changes that are going to happen. (Source: Business Insider)
FICO’s formula might help many people to get a good credit score
In order to evaluate how good or bad are people’s credit scores are, FICO has a formula that considers many factors. FICO Scores are calculated using five categories. They are:
- payment history;
- amounts owed;
- new credit;
- length of credit history;
- and credit mix.
Considering these requirements, you might realize that they belong to a set of things you are responsible for. Let us begin with the first one: payment history. If you are unemployed, probably that will not help you to get a good credit score. Besides, if you spent all you had in order to provide for your family while you search for a job, this choice will be against you when calculating your score as well.
Taking all that into consideration, it is okay to ask if we are delivering any good news at all. The truth is: we are. The factors we punctuated above are part of the old formula for calculating your score. The good news is that your score might be calculated considering the extra factors that we have not mentioned before. According to The Wall Street Journal, FICO will continue to evaluate you regarding the main ingredients of your score, but they will also take a more finely tuned view of other financial behaviors that indicate how bad is your financial situation.
The tricky thing here is that improving your already good credit score will get you a better one. However, if your credit is bad, it might drop. This is because your scores will better reflect the trajectory of your behavior. Thus, if you engage yourself in a mission of paying late bills and cutting credit card use, your credit score will improve. In order to learn more about FICO’s decision, learn the paper that NYT published, which is linked below.
Source: The New York Times