Understanding the 3 digit number that rules your finances.
The acronym FICO stands for Fair Isaac Corporation. FICO is a data analytics company which was founded in 1956 by Bill Fair and Earl Isaac. Using data gleaned from your credit history, FICO generates a score between 300 and 850 which aids creditors in assessing your credit worthiness. The higher your score, the better the credit offers and terms you receive. Any number under 629 is a poor score. Fair to average ranges from 630 to 689. Good is between 690 and 719. Anything above a 720 is considered excellent. The scores reflect credit payment patterns over time with more emphasis on recent information. Scores automatically improve, as one’s overall credit picture gets better. That means showing a historical pattern of paying your bills on time and using credit conservatively.
In order to calculate a score, your credit report must contain recent enough info on which to base the number. The minimum amount of information needed is at least one account opened for at least six months or longer, and which has been reported to the credit bureau in the last six months. Adding to the confusion, there are three credit bureaus, Equifax, TransUnion, and Experian. The credit history reports from each of these companies may contain different information, and thus could result in three different FICO scores depending on the information contained within.
Never assume each credit bureau has your identical credit history. They receive only the information supplied them by lenders, collection agencies, and court records. One bureau may have more up-to-date information than another because some lenders report credit information to the credit bureaus at different times, resulting in discrepancies. The credit bureaus may record, display or store the same information in different ways. You should review your credit history at least once a year, and you are entitled to ONE free annual report from EACH of the three agencies. You can request a copy from AnnualCreditReport.com this is the ONLY real site to check, don’t be fooled by look-a-likes or fake phishing sites that want to steal your identity.
Keep in mind the following:
Not all credit scores are “FICO” scores. Some credit agencies may use an internal scoring system of their own creation. FICO scores are ONLY generated by the FICO corporation. Over 90% of major creditors use FICO scores to determine your credit-worthiness.
Your FICO score will change over time. Just because you had an 810 three months ago doesn’t mean it’s that today. This is caused by changes in your credit history report. Each time your debt ratio on your credit cards change, your score can change. A major purchase that brings your card close to its limit will drop your score until the balances snap back to somewhere near $0.00 and the new lower balance is reported.
Some creditors report your credit info very frequently to the credit bureau while others may only do so on a quarterly basis, and this can change your numbers as well.
How is the FICO number determined?
You FICO score is based on the following:
35%- Payment History
30%- Outstanding Debt
15%- Total Credit History
10%- New Credit Requests
10%- Credit Type Diversity
If you want to raise your score, you need to pay your bills on time, every time, keep your balances low, and apply for new credit only when necessary. NO EXCEPTIONS, NO EXCUSES. Late payments are reported to the credit agencies, as well as your total balances, and new credit requests. Adding negative information to your credit history will cause your FICO score to drop like a rock! Any negative information will stay on your history for up to seven years. It is imperative that you do everything possible to avoid anything which will compromise your good credit.
Here are some suggested tips to follow:
- Pay your bills on time! I can’t stress this enough .
- IF you mess up and miss a payment, get current and stay current! The longer you pay your bills on time, the better your score. Every time you mess up, you sabotage everything you’ve accomplished to that point. SO DON’T MESS UP!
- If you are so deep in debt that you can’t make ends meet, contact your creditors and seek help from a legitimate credit counseling service. You need to get your debt under control before you can fix it. You can’t run or hide from your creditors. It will make things worse. Trust me. I speak from experience. Re-establish your credit history if you have had problems. It will take time, but it can be done. I did it, you can too!
- Keep balances low on credit cards, (under 10%), and avoid carrying a balance.
- Pay off debt rather than move it around.
- Open new accounts only when needed.
- Check your credit history once a year.
- Close unused credit cards, it will lower your score.
- Open new credit cards that you do not need. This could lower your score.
I know all of the above information can seem a bit daunting. If you’re overextended in your financial circumstances because ‘life happened’, I get it. It’s no fun having collection companies calling your home and harassing you because THEY want THEIR money. I’ve had poor credit. Now I have excellent credit. I can tell you from experience that life is great when you have all your bills paid on time, are debt free, have cash in your wallet, money in the bank, and a FICO score over 750. It took time and persistence for me to accomplish this. It didn’t get fixed overnight, but it did get fixed because I stuck to the plan. I tell you this not to brag about my wealth and success, but to encourage you to follow my lead. I did it, and you can too. I believe in you. As always I wish you happiness and success!