FAQ: Credit Scores (FICO)

[_Charles_]

WHAT IS A CREDIT SCORE?
Credit bureau scores are often called “FICO scores” because most credit bureau scores used in the US and Canada are produced from software developed by Fair Isaac Corporation (FICO). FICO scores are provided to lenders by the three major credit reporting agencies: Equifax, Experian and TransUnion.

FICO scores provide the best guide to future risk based solely on credit report data. The higher the score, the lower the risk. But no score says whether a specific individual will be a “good” or “bad” customer. And while many lenders use FICO 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.

A credit score is a number lenders use to help them decide: “If I give this person a loan or credit card, how likely is it that I will get paid back on time?” A score is a snapshot of your credit risk at a particular point in time.

Your report details your credit history as it has been reported to the credit reporting agency by lenders who have extended credit to you. Your credit report lists what types of credit you use, the length of time your accounts have been open, and whether you’ve paid your bills on time. It tells lenders how much credit you’ve used and whether you’re seeking new sources of credit. It gives lenders a broader view of your credit history than do other data sources, such as a bank’s own customer data.

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HOW FAST DOES MY SCORE CHANGE?
Your score can change whenever your credit report changes. But your score probably won’t change a lot from one month to the next. In a given three-month time period, only about one in four people has a 20-point change in their credit score.
While a bankruptcy or late payments can lower your score fast, improving your score takes time. That’s why it’s a good idea to check your score 6–12 months before applying for a big loan, so you have time to take action if needed. If you are actively working to improve your score, you’d want to check it quarterly or even monthly to review changes.

HOW CAN MISTAKES GET ON MY CREDIT REPORT?
If your credit report contains errors, it is often because the report is incomplete, or contains information about someone else. This typically happens because:
-You applied for credit under different names
(Robert Jones, Bob Jones, etc.).
-Someone made a clerical error in reading or entering name or address information from a hand-written application.
-You gave an inaccurate Social Security number, or the number was
misread by the lender.
-Loan or credit card payments were inadvertently applied to the wrong account.

WHAT’S IN YOUR CREDIT REPORT?
Although each credit reporting agency formats and reports this information differently, all credit reports contain basically the same categories of information.
IDENTIFYING INFORMATION.
Your name, address, Social Security number, date of birth and employment information are used to identify you. These factors are not used in credit bureau scoring. Updates to this information come from information you supply to lenders.
TRADE LINES. These are your credit accounts. Lenders report on each account you have established with them. They report the type of account ((bankcard, auto loan, mortgage, etc), the date you opened the account, your credit limit or loan amount, the account balance and your payment history.
INQUIRIES. When you apply for a loan, you authorize your lender to ask for a copy of your credit report. This is how inquiries appear on your credit report. The inquiries section contains a list of everyone who accessed your credit report within the last two years. The report you see lists boir"uoluntarf inquiries, spurred by your oim requests for creit, and `involuntary” inquires, such as when lenders order your report so as to make you a pre-approved credit offer in the mail. See page 14 for more information.
PUBLIC RECORD AND COLLECTION ITEMS. Credit reporting agencies also collect public record information from state and county courts, and information on overdue debt from collection agencies. Public record information includes bankruptcies, foreclosures, suits, wage attachments, liens and judgments.

IS CREDIT SCORING UNFAIR TO MINORITIES?
No. Scoring does not consider your gender, race, nationality or marital status. In fact, the Equal Credit Opportunity Act prohibits lenders from considering this type of information when
issuing credit.

[_Charles_]

WHAT IS REQUIRED TO HAVE A CREDIT SCORE?
In order for a FICO score to be calculated on your credit report, the report must contain at least one account which has been open for six months or greater. In addition, the report must contain at least one account that has been
updated in the past six months. This ensures that there is enough information—and enough recent information —in your report on which to base a score.

WHAT IS A BEACON OR EMPIRACA SCORE?
In general, when people talk about “your score,” they’re talking about your current FICO score. But
in fact there are three different FICO scores developed by Fair Isaac—one at each of the three main US credit reporting agencies. And these scores have different names.

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The FICO scores from all three credit reporting agencies are widely used by lenders. The FICO score from each credit reporting agency considers only the data in your credit report at that agency.
Fair Isaac develops all three FICO scores using the same methods and rigorous testing. These FICO scores provide the most accurate picture of credit risk possible using credit report data.

WILL YOUR SCORES BE DIFFERENT?
FICO scores range from about 300 to 850. Fair Isaac makes the scores as consistent as possible between the three credit reporting agencies. If your information were exactly identical at all three credit reporting agencies, your scores from all three would be within a few points of each other.
But here’s why your FICO scores may in fact be different at the three credit reporting agencies. The way lenders and other businesses report information to the credit reporting agencies sometimes results in different information being in your credit report at the three agencies. The agencies may also report the same information in different ways. Even small differences in the information at the three credit reporting agencies can affect your scores.
Since lenders may review your score and credit report from any of the three credit reporting agencies, it’s a good idea to check your credit report from all three and make sure they’re all right.

ARE FICO SCOREWS THE ONLY CREDIT RISK SCORES?
No. While FICO scores are the most commonly used credit risk scores in the US, lenders may use other scores to evaluate your credit risk. These include:
-Application risk scores. Many lenders use scoring systems that include the FICO score but also consider information from your credit application.
-Customer risk scores. A lender may use these scores to make aedit decisions on its cLM cstomers. Also called `behor scores,” these scores generally consider the FICO score along with information on how you have paid that lender in the past.
-Other credit bureau scores. These scores may evaluate your credit report differently than FICO scores, and in some cases a higher score may mean more risk, not less risk as with FICO scores.

HOW ARE SCORES FIGURED?

A score takes into consideration all these categories of information, not just one or two. No one piece of information or factor alone will determine your score.
- The importance of any factor depends on the overall information in your credit report. For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score. Thus, it’s impossible to say exactly how important any single factor is in determining your score—even the levels of importance shown here are for the general population, and will be different for different credit profiles.
- Your FICO score only looks at information in your credit report. Lenders often look at other things when making a credit decision, however, including your income, how long you have worked at your present job and the kind of credit you are requesting.
- Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your score.

[_Charles_]

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1. PAYMENT HISTORY, WHAT IS YOUR TRACK RECORD?
Approximately 35% of your score is based on this category.
The first thing any lender would want to know is whether you have paid past credit accounts on time. This is also one of the most important factors in a credit score.
Late payments are not an automatic “score-killer.” An overall good credit picture can outweigh one or two instances of, say, late credit card payments. But having no late payments in your credit report doesn’t mean you will get a “perfect score.” Some 60%–65% of credit reports show no late payments at all. Your payment history is just one piece of information used in calculating your score.
Your score takes into account:
-Payment information on many types of accounts. These will include credit cards (such as Visa, MasterCard, American Express and Discover), retail accounts (credit from stores where you do business, such as department store credit cards), installment loans (loans where you make regular payments, such as car loans), finance company accounts and mortgage loans.
-Public record and collection items—reports of events such as bankruptcies, foreclosures, suits, wage attachments, liens and judgments. These are considered quite serious, although older items and items with small amounts will count less than more recent items or those with larger amounts. Bankruptcies will stay on your credit report for 7–10 years, depending on the type.
-Details on late or missed payments (“delinquencies”) and public record and collection items. The score considers how late they were, how much was owed, how recently they occurred and how many there are. A 60-day late payment is not as risky as a 90-day late payment, in and of itself. But recency and frequency count too. A 60-day late payment made just a month ago will affect a score more than a 90-day late payment from five years ago.
-How many accounts show no late payments. A good track record on most of your credit accounts will increase your credit score.

TIPS FOR RAISING YOUR SCORE
-Pay your bills on time.
-Delinquent payments and collections can have a major negative impact on your score.
-If you have missed pay*ments, get current and stay current. The longer you pay your bills on time, the better your score.
-Be aware that paying off a collection account, or closing an account on which you previously missed a payment, will not remove it from your credit report. The score will still consider this information, because it reflects your past credit pattern.
-If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor. This won’t improve your score immedi*ately, but if you can begin to manage your credit and pay on time, your score will get better over time. And you won’t lose points for seeing a credit counselor.

2. AMOUNTS OWED, HOW MUCH IS TOO MUCH?
Approximately 30% of your score is based on this category.
Having credit accounts and owing money on them does not mean you are a high-risk borrower with a low score. However, owing a great deal of money on many accounts can indicate that a person is overextended, and is more likely to make some payments late or not at all. Part of the science of scoring is determining how much is too much for a given credit profile.
Your score takes into account:
-The amount owed on all accounts. Note that even if you pay off your credit cards in full every month, your credit report may show a balance on those cards. The total balance on your last statement is generally the amount that will show in your credit report.
-The amount owed on all accounts, and on different types of accounts. In addition to the overall amount you owe, the score considers the amount you owe on specific types of accounts, such as credit cards and installment loans.
-Whether you are showing a balance on certain types of accounts. In some cases, having a very small balance without missing a payment shows that you have managed credit responsibly, and may be slightly better than carrying no balance at all. On the other hand, closing unused credit accounts that show zero balances and that are in good standing will not raise your score.
-How many accounts have balances. A large number can indicate higher risk of over-extension.
-How much of the total credit line is being used on credit cards and other “revolving credit” accounts. Someone closer to “maxing out” on many credit cards may have trouble making payments in the future.
-How much of installment loan accounts is still owed, compared with the original loan amounts. For example, if you borrowed $10,000 to buy a car and you have paid back $2,000, you owe (with interest) more than 80% of the original loan. Paying down installment loans is a good sign that you are able and willing to manage and repay debt.

TIPS FOR RAISING YOUR SCORE
-Keep balances low on credit cards and other “revolving credit.” High outstanding debt can affect a score.
-Pay off debt rather than moving it around. The most effective way to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
-Don’t close unused credit cards as a short-term strategy to raise your score.
-Don’t open a number of new credit cards that you don’t need, just to increase your available credit. This approach could backfire and actually lower your score.

3. LENGTH OF CREDIT HISTORY, HOW ESTABLISHED IS YOURS?
Approximately 15% of your score is based on this category.
In general, a longer credit history will increase your score. However, even people who have not been using credit long may get high scores, depending on how the rest of the credit report looks.
Your score takes into account:
-How long your credit accounts have been established, in general. The score considers both the age of your oldest account and an average age of all your accounts.
-How long specific credit accounts have been established.
-How long it has been since you used certain accounts.

TIPS FOR RAISING YOUR SCORE
-If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you don’t have a lot of other credit informa*tion. Also, rapid account buildup can look risky if you are a new credit user.

4. NEW CREDIT, ARE YOU TAKING ON MORE DEBT?
Approximately 10% of your score is based on this category.
People tend to have more credit today and to shop for credit—via the Internet and other channels—more frequently than ever. Fair Isaac scores reflect this fact. However, research shows that opening several credit accounts in a short period of time does represent greater risk—especially for people who do not have a long-established credit history.
Multiple credit requests also represent greater credit risk. However, FICO scores do a good job of distinguishing between a search for many new credit accounts and rate shopping for one new account.
Your score takes into account:
-How many new accounts you have. The score looks at how many new accounts there are by type of account (for example, how many newly opened credit cards you have). It also may look at how many of your accounts are new accounts.
-How long it has been since you opened a new account. Again, the score looks at this by type of account.
-How many recent requests for credit you have made, as indicated by inquiries to the credit reporting agencies. Inquiries remain on your credit report for two years, although FICO scores only consider inquiries from the last 12 months. The scores have been carefully designed to count only those inquiries that truly impact credit risk—see page 14 for details.
-Length of time since credit report inquiries were made by lenders.
-Whether you have a good recent credit history, following past payment problems. Re-establishing credit and making payments on time after a period of late payment behavior will help to raise a score over time.

TIPS FOR RAISING YOUR SCORE
-Do your rate shopping for a given auto or mortgage loan within a focused period of time. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.
-Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them off on time will raise your score in the long term.
-Note that it’s OK to request and check your own credit report and your own FICO score. This won’t affect your score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.

[_Charles_]

5. TYPES OF CREDIT IN USE, IS IT A "HEALTHY MIX"?
Approximately 10% of your score is based on this category.
The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open credit accounts you don’t intend to use. The credit mix usually won’t be a key factor in determining your score—but it will be more important if your credit report does not have a lot of other information on which to base a score.
Your score takes into account:
-What kinds of credit accounts you have, and how many of each. The score also looks at the total number of accounts you have. For different credit profiles, how many is too many will vary.

TIPS FOR RAISING YOUR SCORE
-Apply for and open new credit accounts only as needed. Don’t open accounts just to have a better credit mix—
-it probably won’t raise your score.
-Have credit cards—but manage them respon*sibly. In general, having credit cards and installment loans ((and making timely payments) will raise your score. People with no credit cards, for example, tend to be higher risk than people who have managed credit cards responsibly.
-Note that closing an account doesn’t make it go away. A closed account will still show up on your credit report, and may be considered by the score.

WHAT FICO SCORES IGNORE
FICO scores consider a wide range of information on your credit report, However, they do not consider:
-Your race, color, religion, national origin, sex and marital status. US law prohibits credit scoring from considering these facts, as well as any receipt of public assistance, or the exercise of any consumer right under the Consumer Credit Protection Act.
-Your age. Other types of scores may consider your age, but FICO scores don’t.
-Your salary, occupation, title, employer, date employed or employment history. Lenders may consider this information, however.
-Where you live.
-Any interest rate being charged on a particular credit card or other account.
-Any items reported as child/family support obligations or rental agreements.
-Certain types of inquiries (requests for your credit report or score). The score does not count any requests you make, any requests from employers, and any requests lenders make without your knowledge. -Any information not found in your credit report.
-Any information that is not proven to be predictive of future credit performance.

SHOULD I CLOSE OLD ACCOUNTS TO RAISE MY SCORE?
Generally, this doesn’t work. In fact, it might lower your score. First of all, any late payments associated with old accounts won’t disappear from your credit report if you close the account. Second, long‑
established accounts show you have a longer history of
managing credit, which is a good thing. And third, having available credit that you don’t use does not lower your score.
You may have reasons other than your score to shut down old credit card accounts that you don’t use. But don’t do it just to get a better score.

How the FICO Score Counts Inquiries
As explained in the last section, a search for new credit can mean greater credit risk. This is why the FICO score counts inquiries—requests a lender makes for your credit report or score when you apply for credit.
FICO scores consider inquiries very carefully, as not all inquiries are related to credit risk. There are three things to note here:
Inquiries don’t affect scores that much. For most people, one additional credit inquiry will take less than five points off their FICO score. However, inquiries can have a greater impact if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk: People with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries on their reports.
Many kinds of inquiries aren’t counted at all. The score does not count it when you order your credit report or credit score from a credit reporting agency or the myFICO service. Also, the score does not count requests a lender has made for your credit report or score in order to make you a “pre-approved” credit offer, or to review your account with them, even though you may see these inquiries on your credit report. Requests that are marked as coming from employers are not counted either.
The score looks for “rate shopping.” Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though you’re only looking for one loan. To compensate for this, the score counts multiple inquiries in any 14-day period as just one inquiry. In addition, the score ignores all inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping.

INTERPETING YOUR SCORE
When a lender receives your Fair Isaac credit bureau risk score, up to four “score reasons” are also delivered. These are the top reasons why your score was not higher. If the lender rejects your request for credit, and your FICO score was part of the reason, these score reasons can help the lender tell you why your score wasn’t higher.
These score reasons are more useful than the score itself in helping you determine whether your credit report might contain errors, and how you might improve your credit health. However, if you already have a high score (for example, in the mid-700s or higher) some of the reasons may not be very helpful, as they may be marginal factors related to the last three categories described previously (length of credit history, new credit and types of credit in use).
To see your own FICO score and reason codes with a detailed explanation on how you can improve the score over time, visit www.myfico.com.

WHAT IF I AM TURNED DOWN FOR CREDIT?
If you have been turned down for credit, the Equal Credit Opportunity Act (ECOA) gives you the right to obtain the reasons why within 30 days. You are also entitled to a free copy of your credit bureau report within 60 days, which you can request from the credit reporting agencies.
If the score was a primary part of the lender’s decision, the lender will use the score reasons I(see left) to explain why you didn’t qualify for the credit. To get more specific information on what your score is and how you could improve it, go to www.myfico.com.

WHAT IS A GOOD FICO SCORE TO GET?
Since there’s no one "“score cutoff” used by all lenders, it’s hard to say what a good score is outside the context of a particular lending decision. For example, one auto lender may offer lower interest rates to people with FICO scores above, say, 680; another lender may use 720, and so on. Your lender may be able to give you
guidance on the criteria for a given credit product.

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CHECKING YOUR SCORE
Since lenders check your score, it makes sense to see how lenders see you. It’s easy to check your own FICO score, and to find out specific things you can do to raise it.
You can order your FICO score through online services developed by Fair Isaac, in partnership with credit reporting agencies. Our score delivery services give you all the information you need to understand your score, the information it’s based on, and ways to improve your credit health.
An important time to check your score is six months or so before a major purchase, such as a car or home loan. This gives you time to make sure your credit report information is right, correct it if it’s not, and improve your score if necessary. In general, any time you are applying for credit, taking out a new loan or changing your credit mix is a good time to check your FICO score.

MANAGE YOUR CREDIT HEALTH
Improving your FICO score can help you:
-Get better credit ofers
-Lower your interest rates
-Speed up credit approvals

The payoff from a better FICO score can be big. For example, with a 30-year fixed mortgage of $150,000, you could save approximately $131,000 over the life of the loan—or $365 on each monthly payment—by first improving your FICO score from a 550 to a 720.

[Qborofinest24]

ive been told a few times that making late payments on your cell phone bill will affect your sore but i dont see anything about this in your post is this true??

[_Charles_]

1. PAYMENT HISTORY, WHAT IS YOUR TRACK RECORD?
Your score takes into account:
...
-Payment information on many types of accounts. These will include credit cards (such as Visa, MasterCard, American Express and Discover), retail accounts (credit from stores where you do business, such as department store credit cards), installment loans (loans where you make regular payments, such as car loans), finance company accounts and mortgage loans.
...
-Details on late or missed payments (“delinquencies”) and public record and collection items.



While the list here is not 'all inclusive', any body that you owe money too is allowed to report it by law. This includes the ELECTRIC COMPANY, CABLE, WATER, even CELL PHONE companies. The fact of the matter is, most do not report it, but some are starting too.

Charles

[Qborofinest24]

okay thanx

[Amortized]

ive been told a few times that making late payments on your cell phone bill will affect your sore but i dont see anything about this in your post is this true??

cell companies don't report until it goes to collections.