What's In Your Credit Score





						What's In Your Credit Score Listed here are the five main categories of information that FICO (Fair Isaac Corporation) scores evaluates, along with their general level of importance. Within these categories is a complete list of the information that goes into a FICO score. Please note that: 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. Therefore, it’s impossible to measure the exact impact of a single factor without looking at your entire report – even the levels of importance shown in the diagram below 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 information when making a credit decision, however, including your income, how long you have worked at your present job and what type 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 tend to raise your score. What's In Your Credit Score: 1. Payment History 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 significant 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 tend to 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 payments, 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 immediately, but if you can begin to manage your credit and pay on time, your score will get better over time. And seeking assistance from a credit counseling service will not hurt your score. Avoid credit repair agencies that charge a fee to improve your score by removing negative, but accurate, information from your credit report. No one can force credit bureaus or lenders to remove accurate information from a credit report. Credit repair companies often take your money without delivering what they promise. 2. Amounts Owed 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, when a high percentage of a person’s available credit has already been used, this 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 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 the age of your oldest account, the age of your newest 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 information. Even if you have used credit for a long time, opening a new account can still lower your 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 inquiries you initiate, any requests from employers, or any requests lenders make without your knowledge. For details, see How the FICO Score Counts Inquiries. Any information not found in your credit report. Any information that is not proven to be predictive of future credit performance. 4. New Credit 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 reality. 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. The score may consider this information for specific types of accounts. 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 How the FICO Score Counts Inquiries 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 short 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. Be careful about opening new accounts that you don’t need. Opening new accounts can lower your score in the short term. Beware of discounts or low interest rates being offered to entice you to open a new charge account that you don’t need. 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, like myFICO.com. For more information, see Checking Your Score. 5. Types of Credit in Use 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. Do you have experience with both revolving and installment type accounts, or has your credit experience been limited to only one type? How many of each kind you have. The score also looks at the total number of accounts you have. For different credit profiles, how many is too many will vary depending on your overall credit picture. 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 responsibly. 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. 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 important facts about inquiries to note here: Inquiries usually have small impact. 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 can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports. Many kinds of inquiries are ignored completely. The score does not count an inquiry when you order your credit report or credit score from a credit reporting agency or myFICO.com. Also, the score does not count inquiries 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. Inquiries that are marked as coming from employers are not counted either. The score allows 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 ignores all mortgage and auto 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. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score. Should I close old accounts to raise my score? No. 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. Checking Your Score Because lenders check your score, it makes sense to see how lenders see you. It’s easy to check your own FICO score and find out specific steps you can take to improve it. To start, you can order your FICO score through online services developed by Fair Isaac, in partnership with credit reporting agencies. These score delivery services give you all the information you need to understand your score, the information it’s based on, and steps you can take to improve your credit health. You can access these services at www.myfico.com. An important time to check your score is six months or so before you plan to make a major purchase, such as a car or home. This will give you time to verify the information on your credit report, correct errors if there are any, 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 offers 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. What is a good FICO score? 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 their criteria for a given credit product. ORDERING YOUR SCORE FICO score delivery services are available through Fair Isaac’s myFICO site (www.myfico.com) as well as many banks, financial services sites, and credit reporting agencies. You will get: Your current FICO score – the credit score lenders use to measure your credit risk. Your credit report, on which your FICO score is based. A full explanation of your score, the positive and negative factors behind it, and how lenders view your credit risk. A FICO score simulator you can use to see how specific actions, such as paying off all your card balances, would affect your score. Specific tips on what you can do to improve your FICO score over time. myFICO.com also features in-depth information on FICO scores, including a full list of the score factors and sound advice for managing your credit health. In addition, you can see current information on the average interest rates for home and auto loans for different FICO score ranges. BEFORE YOU BUY YOUR SCORE Make sure you buy the FICO score. Some businesses will sell or give you credit scores that are not FICO scores and may not be used to make lending decisions. These services may also give you credit management advice that does not apply to FICO scores and could actually hurt your credit standing with lenders. The advice on this site and on www.myfico.com applies to FICO scores only. FICO scores are the scores most lenders use, so your FICO score is the score to know. Check your score and learn more about scoring at www.myfico.com. Interpreting Your Score When a lender receives your FICO score, up to five “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 can be 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 because they may be only 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 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'm 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 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 (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 can improve it, go to www.myfico.com. Source: http://www.fico.org/ site. Fair Isaac, FICO, FICO Expansion and myFICO are trademarks or registered trademarks of Fair Isaac Corporation, in the United States and/or in other countries. BEACON is a registered trademark of Equifax Inc. EMPIRICA is a registered trademark of TransUnion LLC. Other product and company names herein may be trademarks of their respective owners. © 2000-2006 Fair Isaac Corporation. All rights reserved. http://www.fico.org/ Back to RepairCreditAmerica.com opening © Copyright 2006 All Rights Reserved This site is maintained and hosted by Alliance Internet Marketing This site is best viewed with Internet Explorer or Netscape versions 4.0 or higher