Do you need better Credit? Why? What are you going to do with it?

Obtaining my Free Credit Score

in order for me to access my free credit score, it’s a more manual process with less flexibility.  The reason is, you can only get one report, and that doesn’t help enough.  What helps is getting a monthly monitoring of the credit report so that you can monitor which direction your credit score is going.

What does a FICO score take into consideration?

Your FICO score only looks at information in your credit report and considers both the positive and the negative information on the report including:

  • Payment History – (accounts for about 35%)
  • On-time payments on credit accounts including credit cards, retail accounts (such as department store credit cards), installment loans (loans where you make regular payments, like car loans) and mortgage loans.
  • Late payments (delinquencies) on credit accounts including how late the payments were, how much was owed, how recently the late payments occurred and how many times payments were late.
  • Public record and collection items including delinquency payments on utility bills that are sent to collection agencies,  bankruptcies, foreclosures, lawsuits, wage attachments, liens and judgments. (Older items and items with small amounts will count less than recent items or those with larger amounts.)
  • Amount of credit – (accounts for about 30%)
  • The total amount owed on each account, in addition to the overall amount you owe.
  • Having balances on certain accounts. (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.)
  • The number of accounts that have balances. (A large number can indicate higher risk of over-extension.)

Length of Credit History – (accounts for about 15%)

  • The age of your oldest account and the average age of all of your accounts.
  • How long it has been since you used certain accounts.
  • New Credit – (accounts for about 10%)
  • How many new accounts you have or how long it has been since you opened a new account.
  • How many requests for credit you have made in the last 12 months.
  • How long it has been since a lender made a credit report inquiry.
  • Whether you have repaired your credit history, following past payment problems.
  • Types of Credit – (accounts for about 10%)
  • What type of credit accounts you have, and how many of each type.  This includes:
    • Revolving credit – American Express, Visa, MasterCard, Discover Card, and department store cards.
    • Installment credit – Personal loans, car loans, student loans and mortgages.

Do Lenders use other agencies than FICO for the credit score determination?

Yes.  Many lenders use scoring systems that include the FICO score but may also consider other information in your credit application including the customer’s history with the institution. However, when purchasing a credit score for yourself, make sure to get the FICO score, as this is the score most lenders will look at in making credit decisions.

It is important to remember that no one piece of information or factor alone will determine your score and while lenders use scores to help them make lending decisions, every lender will have its own set of guidelines for a given credit product.

Will Credit Scores very from Agency to Agency?

Yes, but they should be within a few points of each other. If they do differ by more than a few points it should be a red flag that something is wrong and should be further investigated.

There are three different FICO scores developed at each of the three different credit reporting agencies. FICO uses the same method to come up with each score, but the score at each of the three agencies may not be exactly the same because of the different ways lenders report information to the agencies. The FICO score from Equifax is called BEACON, the score from Experian is called the Experian Fair Isaac Risk Model and the score at TransUnion is known as EMPIRICA.

What is a Credit Score and how is it determined?

When a lender gets your credit report, they can also generally get your credit score. A credit score is a mathematically calculated number based on the information in a credit report. By comparing this information to hundreds of thousands of other credit reports, credit reporting agencies come up with a number that can be used to identify your level of future credit risk.

Credit scores are often called “FICO scores” because most scores are produced from software developed by Fair Isaac Corporation also known as FICO. FICO scores range from 300 to 850 – the higher the score, the lower the risk.

In order for a score to be calculated on your credit report, the report must contain at least one account which has been open for at least six months. The report must also contain at least one account that has been updated in the past six months. This ensures that there is enough recent information in your report on which to base a score.

A credit report is a detailed history of a person’s borrowing habits and consists of the following information:

  • Identifying information such as your name, past and present addresses, date of birth and employment history;
  • Credit accounts submitted by lenders who have extended credit to you. This includes the type of account (credit card, auto loan, mortgage, etc.), the date the account was opened, the credit limit or loan amount, the account balance and the payment history;
  • Inquiries on the account for the last two years including voluntary inquiries, when you apply for credit or a loan, and involuntary inquiries, when a lender you are not aware of orders your report to see if they want to make you a pre-approved credit offer;
  • Public record and collection items including information from state and county courts and collection agencies, and public record information like bankruptcies, foreclosures, lawsuits, wage attachments, liens and judgments.

What are the Credit Reporting Agencies?

Credit reporting agencies collect an individual’s financial information, compile it into a credit report and, for a fee, make it available to the individual and to other authorized parties, including financial institutions. Generally when you apply for a loan you give the lender permission to get a copy of your credit report. Companies that lend money rely on credit reporting agencies and the credit reports they generate to help them assess a customer’s ability to repay what they borrow.

Although there are many local and regional credit bureaus throughout the United States, most credit bureaus are either owned or under contract to the nation’s three major credit reporting agencies: Equifax, Experian (formerly TRW) and TransUnion.

Understanding Your Credit Score

When you apply for a credit card, car loan, personal loan, mortgage, or line of credit, the lender will want to know your past history of borrowing in order to determine and understand the risk they might be taking by lending you their money. The status of your credit score will, without a doubt, depend on how good you’ve been in the past at repaying your past and current debts. A bad credit history can affect the credit that’s made available to you or even cause you to be denied credit completely. On the other hand, a healthy credit report and a high credit score can mean better financial options for you. To find out where you stand, a lender will go to a credit reporting agency to get your credit report.

Bad Credit Score

Great Credit: 760 – 850
Good Credit: 680 – 760
Fair Credit: 620 – 680
Bad Credit: Below 620