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