​What is this thing called FICO?

Renting may seem like a straightforward process but there are several things to consider as you begin looking for a rental.

Preparing to Rent Begins Before You Start Looking for A Rental Property

When thinking about our physical health we are often told we should consider following certain health measures to prevent future problems. Our financial health is similar. We need to consider preventive measures to help us meet future financial situations. The following are guidelines to help you improve your financial health, as it applies to your credit score.

Know what your credit score is, primarily your FICO score

There are a number of companies which have credit scoring formulas, but most lenders use what is known as your FICO score. FICO stands for the Fair Isaac Corporation, which was a pioneer in developing a method to calculate credit scores. These scores are based on information from various credit reporting agencies.

There is no single FICO score. Your score depends on the information found in your credit reports generated by Experian, Equifax and Transunion. The FICO score from each of these agencies may vary depending on the data used to calculate the score.

So, how do you find out what your FICO score is? Once a year you can get a copy of your credit report for free from annualcreditreport.com, however this does not give you your FICO score. Usually, you will need to pay a fee to receive your FICO score, although freecreditreport.com is supposed to give you both your credit report and FICO score completely free through Experian. You can also find your FICO score through your bank, credit union, or credit card company. As mentioned, these scores may vary slightly depending on the credit agency used., however the scores are usually fairly close.

It cannot be emphasized enough the importance of learning what your FICO score is. A FICO score of 620 or less is not looked at in a positive way. It is important to work toward getting your FICO score in the 700s, or higher. However, the reason for a low score is also a consideration when renting. If you are just starting to establish credit, have a good employment record, and no bills in collections, it is different than having a low FICO score due to high credit card debt or bills in collections.

Why is you FICO score important?

Your credit score is used by lenders to determine the likelihood of having a loan paid off on time. It is used by property management companies to determine if you will pay your rent on time. If you have unpaid bills or a high debt to income ratio it creates doubt as to your ability to manage your money effectively. It does not appear that you take you financial health seriously. This may mean that your rental application will be denied or that you will be expected to pay a higher security deposit because of an owner’s concern that you might be more likely to default on your rental obligation.

Many property management companies will consider more than just your credit score in making their decision. For instance, you may just be starting to build your credit history, you may have medical or school debt that has lowered your score. Medical and school loans do not have as great an impact as unpaid utility bills, unpaid rent, or other unpaid consumer bills. However, improving your FICO score will help you in all areas of your financial health so it is something you should work on.

How to improve your FICO score
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First of all, get a copy of your free annual credit report.

• Look for errors. If you find errors, you can dispute them or contact the company that has reported the problem and work with them to get it corrected.
• If there are derogatory reports, due to unpaid bills, contact the company and work out a way to pay it off.
• If you have old credit card accounts, which are not in use, keep an eye on them to prevent identity theft.

Pay your loans on time.

• If you have missed payments, get caught up and stay current.

Apply for credit only if there is a real need.

• Set up a savings plan for items you wish to purchase.
• Only use credit for emergencies and then do everything you can to pay it off quickly.

Use a credit card responsibly to establish and build credit.

• Consider using a secured credit card. This is a credit card where you provide a cash security deposit equal to your credit line.
• Use your credit card to make small purchases and then pay them off immediately. Don’t carry the balance over to the next month. Doing this is one of the best ways to build credit.

Do not “max out” your credit card.

• Experts advise that you don’t use more than 30 percent of your total credit limit.

It takes time to establish a good credit history, so start now. If you apply the principles suggested in this article you should see an improvement within a year and it will continue to get better as time goes by.