You and Your Credit Score
FICO
The Score
The most widely used credit score is the FICO Score, the credit score created by Fair Isaac Corporation. Lenders use the FICO Score to help them make billions of credit decisions every year. Fair Isaac calculates the FICO Score based solely on information in consumer credit reports maintained at the credit reporting agencies.
Score Range FICO credit scores range from 300 to
850. That FICO Score is calculated by a mathematical equation that evaluates many types of information from your credit report, at that agency. By comparing this information to the patterns in hundreds of thousands of past credit reports, the FICO Score estimates your level of future credit risk.
What does Your Credit Report Contain
Identification-Name, address-Social Security Number-Current and Previous employers
Credit Information-Credit accounts with Financial institutions,retailers, credit card issuers, other lenders-Credit limits, account balance, payment patternover the last two years
What does Your Credit Report
Contain Public record information
-Bankruptcies-Judgements-Tax liens
Inquiries-Credit Grantors-Potential employers
Credit Score (if requested)
What is not in your Report
Race or religion
National origin
Sex and marital status
Whether you receive public assistance
Criminal activity
What is your credit score?
A credit score is a number which represents an estimate of an individual’s financial creditworthiness
A pioneer credit score company, FICO was founded in 1956 as Fair, Isaac and Company by engineer Bill Fair and mathematician Earl Isaac.
Five Parts to your FICO credit scores
35% of Score - Payment history The score is affected by how many bills have
been paid late, how many were sent out for collection and any bankruptcies. When these things happened also comes into play. The more recent, the worse it will be for your overall score.
30% of Score – How much you owe How much do you owe on car or home loans? How many credit cards do you have that are at their credit limits? The rule of thumb is to keep your card balances at 25 percent or less of their limits.
FICO Score 15% of Score – Length of Credit History The longer you've had established credit, the
better it is for your overall credit score.
10% of Score – New Credit Opening new credit accounts will negatively affect your score for a short time. This category also penalizes hard inquiries on your credit in the past year.
FICO Score 10% of Score –is based on the types of credit you
currently have. It will help your score to show that you have had experience with several different kinds of credit accounts, such as revolving credit accounts and installment loans.
FICO Score
FICO credit scores have a 300–850 score range. The higher the score, the lower the risk. But no score says whether a specific individual will be a “good” or “bad” customer.
Not the only thing… While many lenders use FICO credit
scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable for a given credit product. There is no single “cutoff score” used by all lenders and there are many additional factors that lenders use to determine your actual interest rates.
The minimum required to calculate a FICO Score For your FICO Score to be calculated,
your score must contain enough information—and enough recent information—on which to base your credit score. Generally, that means you must have at least one account that has been open for six months or longer, and at least one account that has been reported to the credit reporting agency within the last six months.
How Actions Affect Credit Scores: Examples
Charge 2 credit cards to the credit limit Score drops from 780 to 700
Pay off a credit account Score increases from 600 to 680
Pay late on a bank loan payment Score drops from 720 to 645
Pay all credit accounts on time Score increases from 707 to 727
Why Credit Scores are important
Helps lenders predict how likely you are to make credit payments on time
Affect whether you can get credit
What you pay for credit cards, auto loans, mortgages, and other types of credit
Higher scores more likely to be approved and pay a lower interest rate
About Credit Scores - Many types of credit scores
Lenders usually mean FICO score developed by Fair Isaac Corporation
Most commonly used scoring system
Scores range from 300 – 850
Most people score in the 600s and 700s
Myths about Credit Scores Close unused credit cards – False
Your credit report merges when you marry – False
FICO Scores are based on income – False
Checking your score hurts your score - False
Why Scores go Down: Pay late or pay less than required
payment
Public Record items appear Bankruptcy, Judgements
Credit balances go up a lot
Open new accounts
What makes scores go up: Pay bills on time
Pay down credit card balances
Keep older accounts open
Avoid opening new ones
Apply for new credit only when you need it
Make sure your credit report is accurate
Improving your Score will…
Lower your interest rates
Speed up credit approvals
Get better credit card, auto, mortgage offers
Key Points: Get a copy of your credit report annually
Every 12 months – free copy of credit report from three major reporting agencies
www.annualcreditreport.com or 1-877-322-8228
Correct any errors or inaccuracies
Establish good credit habits
3 Major Credit Reporting Agencies
Experian Web: www.experian.com Phone: 1-800-200-6020
Equifax Web: www.equifax.com Phone: 1-866-685-1111
Transunion Web: www.transunion.com Phone 1-800-888-4213