Credit Scores

Your credit score in addition to your Social Security number is one of the most important numbers associated with an individual.  No matter what institution you borrow money from, your credit report will be pulled.  

Your credit score is calculated by a mathematical equation that evaluates many types of information that are on your credit report at that agency. By comparing this information to the patterns in hundreds of thousands of past credit reports, the score identifies your level of future credit risk.

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.

About FICO scores

Credit bureau scores are often called "FICO scores" because most credit bureau scores used in the US are produced from software developed by Fair Isaac and Company. 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 and there are many additional factors that lenders use to determine your actual interest rates. 

Other Names for FICO Scores

FICO scores have different names at each of the three credit reporting agencies. All of these scores, however, are developed using the same methods by Fair Isaac, and have been rigorously tested to ensure they provide the most accurate picture of credit risk possible using credit report data.

More than one score

In general, when people talk about "your score", they're talking about your current FICO score. However, there is no one score used to make decisions about you. This is true because:

• Credit bureau scores are not the only scores used.
  Many lenders use their own scores, which often will include the FICO score as well as other information about you.

• FICO scores are not the only credit bureau scores.
  There are other credit bureau scores, although FICO scores are by far the most commonly used. Other credit bureau 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.

• Your score may be different at each of the three main credit reporting agencies.
  The FICO score from each credit reporting agency considers only the data in your credit report at that agency. If your current scores from the three credit reporting agencies are different, it's probably because the information those agencies have on you differs.

• Your FICO score changes over time.
  As your data changes at the credit reporting agency, so will any new score based on your credit report. So your FICO score from a month ago is probably not the same score a lender would get from the credit reporting agency today.

Here's an example of how your credit score could affect your interest rate based on a 30 year fixed rate mortgage (rates vary daily).  The higher your score the better.

                       Example

 

What's in Your Score FICO Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining your score.   These percentages are based on the importance of the five categories for the general population. For particular groups - for example, people who have not been using credit long - the importance of these categories may be somewhat different. Payment History Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.) Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items) Severity of delinquency (how long past due) Amount past due on delinquent accounts or collection items Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any) Number of past due items on file Number of accounts paid as agreed Amounts Owed Amount owing on accounts Amount owing on specific types of accounts Lack of a specific type of balance, in some cases Number of accounts with balances Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts) Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans) Length of Credit History   Time since accounts opened Time since accounts opened, by specific type of account Time since account activity New Credit  Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account Number of recent credit inquiries Time since recent account opening(s), by type of account Time since credit inquiry(s) Re-establishment of positive credit history following past payment problems Types of Credit Used  Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)            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. 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. What's important is the mix of information, which varies from person to person, and for any one person over time. Your FICO score only looks at information in your credit report. However, lenders look at many things when making a credit decision 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.

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