CREDIT SCORE

What is a Fico Score?

A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of evaluating the risk associated with lending you money. Fair, Isaac began its pioneering work with credit scoring in the late 1950s and, since then, scoring has become widely accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrowers credit history into a single number. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable.

How is my Score Calculated?

Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Developing these models involves studying how thousands, even millions, of people have used credit. Score-model developers find predictive factors in the data that have proven to indicate future credit performance. Models can be developed from different sources of data. Credit-bureau models are developed from information in consumer credit-bureau reports.

Credit scores analyze a borrower's credit history considering numerous factors such as:

How long you've lived at your current address
Your job or profession
Your financial obligations (debt-to-income ratio)
Any late payments
The amount of credit you have outstanding
The amount of credit you are using
The amount of time you've had credit established

There are really three FICO scores computed by data provided by each of the three bureaus - Experian, Trans Union and Equifax. Some lenders use one of these three scores, while other lenders may use the middle score.

Most Weighted Factors:

Current balances on accounts, too few bank revolving accounts, too many bank revolving accounts, number of accounts with balances, number of accounts opened in the last 12 months, length of time accounts have been established, amount of past due accounts, number of delinquent accounts, too few accounts rated "current," recent derogatory public record of collection, past due balances, number of credit inquiries made.

What is considered a Good Score?

The magic FICO number is 620. If you score below 620 you are considered to have a very high default risk giving you the possibility of being declined. If you score between 620 & 650 you will be put into a "questionable" category where you will have to provide further documentation to get approved. A score of 650 or above is considered golden or "cream of the crop," and most likely you will be eligible for the best rates on your loan.

How can I increase my score?

While it is difficult to increase your score over the short run, here are some tips to increase your score over a period of time:

Pay your bills on time. Late payments and collections can have a serious impact on your score.
Do not apply for credit frequently. Having a large number of inquiries on your credit report can worsen your score.
Reduce your credit-card balances. If you are "maxed" out on your credit cards, this will affect your credit score negatively.
If you have limited credit, obtain additional credit. Not having sufficient credit can negatively impact your score.

What if there is an error on my credit report?

If you see an error on your report, report it to the credit bureau. The three major bureaus in the U.S., Equifax (1-800-685-1111), Trans Union (1-800-916-8800) and Experian (1-888-397-3742) all have procedures for correcting information promptly.