Who Is Mr. Fico & How Does He Come Up with Your Credit Score?

What's the difference between credit score, credit rating & FICO score - nothing much really. Do you know what FICO stands for? It refers to the Fair Issac Corporation which is the company that first developed a scoring system related to an individual's credit history. (Just a lil something, something for the water cooler to make you look smart.)

Anywho as we know there are 3 major credit reporting agencies: TRANSUNION, EXPERIAN & EQUIFAX which each report their own credit score. Transunion computes the Empirica Score, Experian computes the Plus Score & Equifax computes the Beacon Score. From there lenders basically determine your "credit worthiness."

Now how are these scores calculated? They are broken down as follows:

35% = PAYMENT HISTORY - Paying your bills on time. The last 6 months have the most impact with your highest monthly bill carrying the most weight when your score is calculated.

30% = BALANCES CARRIED - Debt vs. Credit ratio. In other words the relationship between the actual dollar amount you owe (ie. credit cards, loans, lines of credit) to the amount of credit you still have available.

15% = CREDIT HISTORY - Looks at the big picture of how your behavior with credit. Paying on time helps with this, but do not, I REPEAT, do not make the mistake of paying off a debt & then closing the account. Why? This erases all of the credit history for that account which could decrease your score.

10% = MIX OF ACCOUNTS - Credit bureaus expect to see mortgage & auto loans and 3-5 credit cards per person, but beyond this any other revolving accounts tend to bring your score down.

10% = INQUIRIES - Each inquiry by lenders will take points off your credit score. But multiple inquiries for a mortgage or car within 45 days will only count as ONE inquiry. Inquiries regarding a job, your own personal review or a promotion (those annoying pre-approval offers you get in the mail) WILL NOT hurt your credit score.

There are also a few surefire ways to significantly hurt your score that you need to know about:

· Being 30 days late on a payment can damage your credit score by at least 50 or more points
· Being 60 or 90 days late, or a 30-day late payment on multiple accounts can drop your score by 100+ points
· Having credit card balances more than 40% of your credit limit affects your score by as much as 100 points
· If multiple credit cards are maxed out or approaching maximum balances, your credit score will be diminished by at least 80+ points

Any questions?