Interpreting Your Credit Score

 

Your credit score it is one of the most critical factors in your financial life. It determines if you will be approved for a loan or line of credit. Credit scores are used to determine: if you will be hired for a job, interest rates, terms and conditions, downpayment costs, rates for medical and other insurance coverage, approval for cable and internet service and more.

A credit score is a mathematically calculated number developed by the Fair Isaac Corporation (FICO) that lenders use to rate potential customers in determining the likelihood that a customer will pay their bills on time.

A credit score or credit rating is determined by using five main criteria as defined by MyFico.com: your payment history which accounts for 35% of your credit score, the amounts owed which accounts for 30% of your credit score, the length of your credit history which accounts for 15% of your credit score, new credit which accounts for 10% of your credit score, and the types of credit used which accounts for 10% of your credit score.

Payment history shows the history of how you paid your bills either on time or late but unfortunately does not show if your bills were paid before the due date. Amounts owed shows the total amount of credit you have available. The length of history indicates how long you have had credit. New credit indicates how many times you have applied for new credit. If you open too many new accounts in a short period of time this may lower your credit score. The types of credit used indicate the types of accounts you have such as revolving or installment accounts. Revolving accounts are usually credit cards and installment accounts are usually mortgages, auto loans, etc.

The FICO credit score model ranges from 300-850 with 850 being an excellent score and 300 being the worst score. The higher the credit score the lower the interest rate you will receive for a loan or line of credit. Possessing a good credit score can save you thousands of dollars in interest over the life of the loan or on a line of credit. A good credit score is generally in the range of 720 or above but may vary from lender to lender.

When applying for credit or a loan if all three credit scores are pulled, the middle score is generally the score used with the application.  Your credit score varies from each bureau because each agency collects their own data from various sources and may collect different data for the same account. Your score can vary anywhere from 5-40 points between the three credit bureaus.

Your credit score changes due to updates to your credit file which changes based on account activity such as balance changes or additions to your credit file (i.e. new accounts or deletion of older negative accounts more than 7 or 10 years old). As a result, you may see a difference in your score from one month to the next.  If you have bad credit or a low credit score here are 5 things you can do to boost your credit score:

1.      Pay your bills on time.

2.      Get current on all late accounts.

3.      Pay more than the monthly minimum payment.

4.      Develop a plan to reduce your total debt.

5.      Keep your credit card balance at 20% or less of the credit card limit.

If you plan on purchasing a large item such as a car, house or investment property, it is best to pull your credit yourself to see if any negative items appear so you can fix those issues before applying for a loan. The best way to understand your credit score is to do research and read the information that is provided when you order your credit report.

5 Tips to Make Your Credit Score Soar

Your credit score is one of the most important factors in your financial life.  There are lots of benefits to having good credit:  you don’t have creditors calling harassing you for payment, you get approved on the first try, you get good interest rates and terms and you get discounts and notifications about specials.

If you have good credit and a good relationship with your local bank or lender you also have more negotiating power to get the best rates possible. 

Unfortunately, many Americans are still feelings the effects of the recession and have bad credit.  This makes it difficult to get employed and get approved for credit or a loan. 

If you are already in debt, don't have an emergency fund, savings account or retirement account you need to reevaluate your spending habits. Order a copy of your credit report at least once a year from the 3 major credit bureaus: Experian, Equifax, and TransUnion at annualcreditreport.com or call 877-322-8228.

Seventy-five percent of Americans have at least one mistake on their credit report and seventy-percent of Americans have at least one major mistake on their credit report which can lower your credit score. 

While you are working on improving your spending habits you can also follow these 5 tips to help make your credit score soar so when the time is right you can make a purchase and get the best deal possible.

1. Change your mindset. You have to change the way your currently spend money and develop good spending habits so you make good choices when making purchases, buy in terms of needs vs. wants. Spend less than you earn.

2. Get current on late bills. Pay old or late accounts immediately such as collections, tax liens, and judgments. Setup payment plans for late bills that cannot be paid in full.

3. Establish credit. Open a secured account if you have bad credit or no credit to re-establish credit history.

4. Keep balances low. Keep credit card balances at 20% or less of the credit limit. This shows you have good spending habits are not seen as a credit risk.

5. Don't open new accounts. Don't open any new accounts more than once every year when trying to improve your credit score. You will be seen as a credit risk and this will lower your credit score.

5 Ways to Boost Your Credit Score

Your credit score is one of the most important factors in your financial life. The current recession makes it even harder for consumers to get approved for a loan or line of credit which is why it is so crucial to have good credit.

If you have good credit and can afford to make purchases during this time you can get some great deals. However, if you are already in debt, don't have an emergency fund, savings account or retirement account you need to reevaluate your spending habits. While you are working on improving your spending habits you can also follow these 5 tips to boost your credit score so when the time is right you can make a purchase and get the best deal possible.

1. Change your mindset. You have to change the way your currently spend money and develop good spending habits so you make good choices when making purchases, buy in terms of needs vs. wants.

2. Get current on late bills. Pay old or late accounts immediately. Setup payment plans for bills that cannot be paid in full.

3. Establish credit. Open a secured account if you have bad credit or no credit to re-establish credit history. Use non-traditional forms of credit to establish history such as Pay Rent Buy Credit (Payment Reporting Builds Credit).

4. Keep balances low. Keep your credit card balances at 50% or below the credit limit. This shows you have good spending habits are not seen as a credit risk.

5. Don't open new accounts. Don't open any new accounts more than once every year when trying to improve your credit history. You will be seen as a credit risk and this will lower your credit score.

6 Tips to Estimate Your Credit Score

Having a credit card is a great responsibility. Some of us use our credit wisely and some of us use credit unwisely. Credit is one the most important aspects of your financial future. You could have a sizeable savings account but have bad credit and may still get denied for a loan or credit card. At the other end of the spectrum, you could have no savings account and good credit and get approved for several loans or credit cards.

Here are 6 tips to help ensure you know your credit picture when applying for a loan or credit card.

1. Do you how many accounts you have the are currently late, i.e. 30, 60, 90 days or more?
2. Do you have any accounts have that were previously late, i.e. one or two years ago?
3. Do you have any open or closed accounts there were collection accounts, repossessions, judgments, or bankruptcies?
4. How many loans or credit card accounts you have opened in the past two years?
5. How many revolving and installment loans you have?
6. How many open credit card accounts you have?

If you answered question 1 you may have bad credit and need to quickly setup payment plans to get current on your late accounts. You can also open a secured line of credit or secured credit card to establish good credit. Your credit score could range anywhere from 350-500.

If you answered question 2 or 3 you may have bad credit and need to open a secured line of credit or secured credit card to establish good credit. Your credit score could range anywhere from 501-659.

If you answered questions 4, 5 or 6 you may have average or good credit depending on the amount of debt you owed and your credit limits. Your credit score could range anywhere from 620-700.

If you were not able to answer questions 1, 2 or 3 you probably have average to good credit as long as you have not made any late payments in the last 3-6 years. Your credit score could range anywhere from 650-750.

The most important thing to remember before applying for a credit card is to determine your total credit limit. Many of us including myself believed that your total credit limit was the credit limit on each credit card or line of credit. Your total credit limit is the credit limit on each credit card, i.e. if you have 3 credit cards, a Discover card with a credit limit of $5,000, a MasterCard with a credit limit of $7,000 and a Visa with a credit limit of $10,000, your total credit limit is $22,000 ($5,000 + $7,000 + $10,000).

This amount is factored in your debt-to-income ratio during the review process for approval of a loan because it is the amount of credit that you have available and could possibly use at any given time although you may never use it.

Also, determine what your total balance is for each open credit card. The total balance is your credit limit plus the current balance on your credit card, i.e. if you have a Discover card with a balance of $3,000, a MasterCard with a balance of $700, and a Visa with a balance of $5,000, your total balance on your open credit cards is $8,700.

This amount is one of the 5 factors used to determine your credit score and accounts for 30% of your credit score.

It is not a good habit to “max out” your credit cards because this may lower your credit score and can cause you to go over your credit limit and results in additional charges from your creditor between $29-$35.

If you have a MasterCard with a balance of $6,000 and a limit of $7,000 and a Visa with a balance of $9,000 and a credit limit of $10,000 you would be considered “max outed” because you have less than 10% of the credit limit available to spend.

Use credit cards sparingly and always make your payments on time. If you know you will be making a late payment contact your creditor immediately to setup a payment plan or arrangements to make a payment so your credit is not affected.

Copyright © 2007 H.E. Freeman Enterprises

Fair Isaac Moves to Protect Lenders from Fradulent Manipulation of Authorized User Credit Cards

Fair Isaac Moves to Protect Lenders from Fraudulent Manipulation of Authorized User Credit Card Accounts

Company’s Newest FICO Scoring Model Will Ignore Authorized User Accounts When Calculating Classic FICO Credit Risk Scores

MINNEAPOLIS--(BUSINESS WIRE)--Fair Isaac Corporation (NYSE:FIC) today announced that it will adjust its FICO® scoring formula to ensure the continued reliability and predictive power of FICO scores. This action is intended to protect lenders and FICO scores from abuse of authorized user credit card accounts by a new kind of credit repair service that sells consumer credit card histories to credit applicants in order to purposefully misrepresent the applicants’ own credit history to lenders and other businesses. The adjustment removes authorized user accounts from consideration by the scoring model in FICO 08, the newest version of the Classic FICO credit score which Fair Isaac expects to become available to lenders starting in September.

“We will do whatever it takes to protect the reliability and accuracy of FICO credit scores for lenders, and to ensure lenders can continue to use FICO scores with confidence when making their most important customer decisions,” said Dr. Mark Greene, CEO of Fair Isaac. “We will continue working with lenders, regulators and others in the credit reporting industry to end deceptive practices that fraudulently misrepresent consumer credit histories for profit.”

An authorized user is a person permitted by a credit account holder to use an account, typically a family member who is managing credit for the first time. Used legitimately, authorized user account information has helped both lenders and consumers by enabling lenders to use FICO scores when making credit decisions for consumers who are starting a credit history. Fair Isaac’s research indicates that the next version of its FICO scoring formula will deliver increased predictive power without considering authorized user accounts.

Fair Isaac will work closely with lenders to help them implement and benefit from the FICO 08 score as it becomes available. As the company announced previously, lenders will be able to use the new version of FICO scores with minimal changes to their own operating systems. To make lender adoption easier and faster, the new scoring model will retain the same scoring range, score reason codes, minimum scoring criteria, inquiry treatment, and related model parameters as previous versions of the FICO formula.

About Fair Isaac
Fair Isaac Corporation (NYSE:FIC) combines trusted advice, world-class analytics and innovative applications to help businesses make smarter decisions. Fair Isaac’s solutions and technologies for Enterprise Decision Management turn strategy into action and elevate business performance by giving organizations the power to automate more decisions, improve the quality of their decisions, and connect decisions across their business. Clients in 80 countries work with Fair Isaac to increase customer loyalty and profitability, cut fraud losses, manage credit risk, meet regulatory and competitive demands, and rapidly build market share. Fair Isaac also helps millions of individuals manage their credit health through the fair Isaac website.

Fair Isaac Statement Concerning Forward-Looking Information
Except for historical information contained herein, the statements contained in this press release that relate to Fair Isaac, including statements regarding its FICO® score, and the relationship described herein, and the benefits to be derived from the offering, are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including any unforeseen technical difficulties related to the implementation, use and functionality of the offering, the risks that customers will not perceive material benefits from the offering, failure of the product to deliver the expected results, the possibility of errors or defects in the offering, regulatory changes applicable to the use of consumer credit and other data, and other risks described from time to time in Fair Isaac’s SEC reports, including its Annual Report for the year ended September 30, 2006, and quarterly report on Form 10-Q for the period ended March 31, 2007. Forward-looking statements should be considered with caution. If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, Fair Isaac’s results could differ materially from Fair Isaac’s expectations in these statements. Fair Isaac disclaims any intent or obligation to update these forward-looking statements.

Fair Isaac and FICO are trademarks or registered trademarks of Fair Isaac Corporation, in the United States and/or in other countries. Other product and company names herein may be trademarks or registered trademarks of their respective owners.

Fair Isaac CorporationInvestors/Analysts:John D. Emerick, Jr., 800-213-5542
investor@fairiasac.com