Understanding FICO Credit Score

2010 February 3

Your credit score is important for creditors to judge your creditworthiness for a loan, that is how good are you at paying back the money. When buying a home or car with financing, lenders use your credit score to determine what interest rate to give you and the loan amount limit.

Commonly, creditors use FICO score when issuing credit for loans, rentals, insurance, and even applying for a job.

The FICO scores, a measure of credit risk, which are the most used credit scores in the world. FICO scores are available through all of the major consumer reporting agencies in the United States and Canada: Equifax; Experian; TransUnion; and PRBC. FICO was created by Fair Isaac Corporation.

Your FICO score can be found on your credit report from the three major credit agencies. Your credit report will vary a slightly from each company.

Also, you can obtain a free copy of your credit report by visiting AnnualCreditReport.com, which is a joint venture by Experian, Equifax and TransUnion. However, it will not contain your credit score.

Annual Credit Report Request Service
PO Box 105283
Atlanta, GA 30348-5283

To dispute information in your credit report or for problems with the Credit Reporting Agencies, you must contact Equifax, Experian, or TransUnion directly.

Credit Score number

The number system used ranges from 0 to 999, but all or nearly all actual scores fall between 330 and 850. The higher the number the better your credit score is.

330 - 619: Poor credit
620 - 659: Subprime credit for financing
660 - 720: Prime credit for financing
721 – 750: Prime and may qualify for lower than prime rate
751+: Excellent credit

What Affects Your Credit Score

Here are the generally items used in calculation of the FICO score.

35% of your credit score is based on your consistent payment history.
30% is based on the percentage of your credit capacity being used or the ratio of current credit debt to total available credit or revolving credit.
15% of your score is determined by the length of your credit history.
10% the types of credit you have: car loan, mortgage loan, student loan, credit cards.
10% how often you apply for for credit. Applying for loans will impact your credit score negatively.

Fix Bad Credit and Raise Your Credit Score

Always make your payments on time.
Carry a low balance on your credit cards or revolving credit.
Utilize a low ratio of debt to credit available.
Fix inaccurate information on your credit report.

Fraud Alerts and Identity Theft

You have the right to ask that consumer credit reporting companies place fraud alerts in your file to let potential creditors and others know that you may be a victim of identity theft. A fraud alert can make it more difficult for someone to get credit in your name because it tells creditors to follow certain procedures to protect you.

You may place a fraud alert in your file by calling just one of the three nationwide consumer credit reporting companies. As soon as that agency processes your fraud alert, it will notify the other two, which then also must place fraud alerts in your file.

The inconvenience is that it may delay your ability to obtain credit, but how often do you apply for a loan and what is the price of someone stealing your identity.

Equifax: 1-877-576-5734
Experian: 1-888-397-3742
TransUnion: 1-800-680-7289

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