To start with, FICO isn’t all that mysterious. It is a score designed to summarize the information listed on a Credit Bureau Report. If you have looked at a number of these reports you can probably generalize the good from the bad.
What FICO does is provide you with a more accurate meter. You’re estimate that a person has ‘Really Good’ Credit could be reflected in a FICO score of 725, 750 or 675. The difference means a lot to big lenders. Once you know how they do it, it could mean a lot to you.
FICO takes every line on a Credit Report and assigns it a value. The value is primarily based on timely payments from established credit sources. If a person pays a MasterCard on time each month consistently for 2 years the score goes up. Payment history accounts for a whopping 35% of the FICO Score and Account duration for 30%.
Available credit, on the other hand, accounts for only 10% of the FICO. This is a figure available by doing lots of adding or by getting your Credit Report with a summary section. In that section you will easily find the Total Credit Granted and the Total Available Credit. In some businesses, this is a very important number. People may be paying their Credit Cards on time but if they are raising their total debt each month, even a small amount every month making minimum payments, they are heading toward insolvency. If they have 30,000 in available credit and have used 25,000 of it, they are high probability risks.
FICO only gives this aspect of Credit about 10% of its scoring value. That may be fine for Credit Card companies who have a yearly write off of about 2% with high interest rates. Maybe it isn’t so good for you, however.
If your customers have modest incomes there is usually no safety net available to them once their credit is all used up. You may be at the top of their payment list each month, but all bets are off when the money crunch hits. This is especially true in Realty Management and Consumer services.
It is also a problem for Business Clients who provide you with a personal guarantee. The business goes bad and you are holding a guarantee from a person who is insolvent.
FICO is a good score, just not infallible. High scores mean on time payments. For most of you, check available credit. It has a heightened impact for individuals with lower incomes.
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ABOUT EXECUTIVE CREDIT MANAGEMENT, INC.
Executive Credit Management is a full-service Debt Collection and Applicant Screening agency with over 20 years experience located in Central New Jersey. We provide excellent service in the following areas: Employment Screening, Business Screening, and Tenant Screening. Executive Credit Management belongs to a number of Skip Tracing databases and offers services to help locate and confirm the current address of missing debtors. Other services provided are: litigation evaluation on all lawsuit decisions, improvement of the quality of the applicant data, Lawsuit Monitoring, Handling of Debtor Disputes. Executive Credit Management features the best Call Monitoring System in the Debt Collection industry.