What is a fico score/credit score? What things can affect my fico score/credit score?

On various television programs you have probably heard the words “fico” score or credit score mentioned, but what exactly is this? 

Fico stands for the Fair Isacc Corporation.  They were the inventors of a credit scoring system that most of the world uses. 

Your credit score or fico score represents a calculated measure of what type of credit risk you actually are.  Credit scores range from 300 – 900 with the majority of people in the 600 – 800 range. Higher credit scores mean lower interest rates charged on loans.  Lower credit scores mean higher interest rates charged on loans.  For instance, a person with a credit score of 450 will pay  three to five points higher interest rates on loans than a person who has a credit score of 800.

Keeping a good credit score is very important because it can affect your ability to get a mortgage, get a school loan, get a car loan and even your ability to rent suitable accommodations. 

What are the things you may want to know…that affect your credit score for better or worse?

The amount of time you have had credit – Loyalty pays off. Try to establish credit with companies for at least seven years or more. Although other reward programs or incentives can be tempting, jumping around from credit card company to credit card company can lower your fico score/credit score. Of course, age also plays a factor in the total amount of time you have had credit too.  The amount of time you have had credit makes up 15% of your fico score/credit score. 

How often your credit is accessed – Buying a car?  Opening a bank account?  Applying for a credit card?  Renting an apartment? Inquiring about loan?  Getting a mortgage?  All these things require access to your credit report.  Each time someone other than you accesses your credit report it lowers your score.  If you are buying a car, inquiries within 14 days will be grouped together.  If you are buying a house inquiries within 30 days will be grouped together.  How often your credit is being accessed makes up 10% of your fico score/credit score. 

Different types of credit you have – Installment debt like a car loan or a mortgage is looked upon more favorably than revolving debt like credit cards.  The different types of credit you have make up 10% of your fico score/credit score. 

Your bill payment history  – Do you pay your bills in full and on time?  If you are not paying your bills on time and/or making minimal payments on several maxed out credit cards this will lower your credit score.  Do you know that your bill payment history actually makes up the largest portion of your fico score/credit score?  35% 

How much debt you have compared to available credit – Maxed out or high balances on your credit cards?  If you compare the amount of your available credit on your credit card compared to the amount of debt you have on your credit cards; does it work out to over 50%?  If it does, this affects your credit rating for the worse.  Your goal should be not to borrow more than 50% of your available credit balance from any single lender. (mortgages and car loans excluded) Do you know will have a better credit score if you owe smaller amounts on several credit cards rather than maxing out one credit card to its limit?  How much debt you have compared to available credit makes up 30% of your fico score/credit score.

Here is an example of what a credit report looks like.

If you live in Canada, here are links to Canadian credit bureaus:

Transunion

Equifax

Experian


If you live in the U.S. here are links to U.S. credit bureaus: 

Equifax

Transunion

Experian


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2 Comments (+add yours?)

  1. coconews
    Feb 20, 2009 @ 19:19:16

    It’s a good idea to access your credit report every once in awhile to see if anyone has been accessing your credit report that shouldn’t be.

    Of course, accessing your credit report can also protect you from identity theft too.

    I will get into declaring bankruptcy on a future thread.

    Have you ever accessed your credit report and found unauthorized credit checks? Perhaps, you test drove a car and the car dealership took the liberty of checking your credit report while you were out on the test drive.

  2. coconews
    Feb 22, 2009 @ 09:42:28

    Comments may take awhile to appear due to an automatic spam delete filtering process.

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