What's
your FICO Score?
Lenders use it to estimate risk
Along with the credit report, lenders can also buy a credit
score based on the information in the report. That score is calculated
by a mathematical equation that evaluates many types of information that
are on your credit report at that agency. By comparing this information
to the patterns in hundreds of thousands of past credit reports, the score
identifies your level of future credit risk.
A majority of lenders use FICO scores as one method to estimate an applicant’s
credit risk. People with high FICO scores are likely to repay loans and
credit cards more consistently than people with low FICO scores. Although
FICO scores are remarkably predictive, no one can predict with certainty
whether or not an applicant will repay a credit account.
In order for a FICO® (Fair, Isaac and Company) score to be calculated
on your credit report, the report must contain at least one account which
has been open for six months or greater. In addition, the report must
contain at least one account that has been updated in the past six months.
This ensures that there is enough information -- and enough recent information
-- in your report on which to base a score.
You can get your personal FICO report by visiting myFICO.com.
About FICO scores
Credit bureau scores are often called "FICO scores" because
most credit bureau scores used in the US are produced from software developed
by Fair, Isaac and Company (FICO). FICO scores are provided to lenders
by the three major credit reporting agencies: Equifax, Experian and TransUnion.
FICO scores provide the best guide to future risk based solely on credit
report data. The higher the score, the lower the risk. But no score says
whether a specific individual will be a "good" or "bad"
customer. And while many lenders use FICO scores to help them make lending
decisions, each lender has its own strategy, including the level of risk
it finds acceptable for a given credit product. There is no single "cutoff
score" used by all lenders and there are many additional factors
that lenders use to determine your actual interest rates.
More than one score
In general, when people talk about "your score," they're talking
about your current FICO score. However, there is no one score used to
make decisions about you. This is true because:
- Credit bureau scores are not the only scores used.
Many lenders use their own scores, which often will include the FICO
score as well as other information about you.
- FICO scores are not the only credit bureau scores.
There are other credit bureau scores, although FICO scores are by far
the most commonly used. Other credit bureau scores may evaluate your
credit report differently than FICO scores, and in some cases a higher
score may mean more risk, not less risk as with FICO scores.
- Your score may be different at each of the three credit reporting
agencies.
The FICO score from each credit reporting agency considers only the
data in your credit report at that agency. If your current scores from
the three credit reporting agencies are different, it's probably because
the information those agencies have on you differs.
- Your FICO score changes over time.
As your data changes at the credit reporting agency, so will any new
score based on your credit report. So your FICO score from a month ago
is probably not the same score a lender would get from the credit reporting
agency today.
Interpreting Your Score
When a lender receives your Fair, Isaac credit bureau risk score, up to
four "score reason codes" are also delivered. These explain
the top reasons why your score was not higher. If the lender rejects your
request for credit, and your FICO® score was part of the reason, these
score reasons can help the lender tell you why your score wasn't higher.
These score reasons are more useful than the score itself in helping
you determine whether your credit report might contain errors, and how
you might improve your score over time. However, if you already have a
high score (for example, in the mid-700s or higher) some of the reasons
may not be very helpful, as they may be marginal factors related to the
last three categories described previously (length of credit history,
new credit and types of credit in use).
Common score reasons
Here are the top 10 most frequently given score reasons. Note that the
specific wording given by your lender may be different from this.
- Serious delinquency.
- Serious delinquency, and public record or collection filed.
- Derogatory public record or collection filed.
- Time since delinquency is too recent or unknown.
- Level of delinquency on accounts.
- Number of accounts with delinquency.
- Amount owed on accounts.
- Proportion of balances to credit limits on revolving accounts is too
high.
- Length of time accounts have been established.
- Too many accounts with balances.
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