Understanding FICO® Scores

FICO® scores are the most well-known example of a credit score. The name FICO comes from the creators of the FICO score, Fair Isaac Corporation. They designed the FICO score as a way of calculating and predicting a person’s likelihood to borrow and repay debts responsibly.

What makes a FICO score?

Although the exact calculation of the FICO score is not available to the public, generally there are five main factors that may determine your score*:

• 35% of your FICO score is driven by your payment history – how timely is it?
• 30% of your FICO score is driven by how much debt you have - and too little can be as harmful as too much!
• 15% of your FICO score is driven by how long your credit history has been established.
• 10% of your FICO score is driven by the types of credit you use.
• 10% of your FICO score is driven by recent debt you’ve added.

FICO score ranges and what they mean

FICO scores range from 300 to 850, and the higher the score, the better. Here’s how the U.S. population rates by FICO score:*

• 13% have FICO scores of 800+
• 27% have FICO scores of 750-799
• 18% have FICO scores of 700-749
• 15% have FICO scores of 650-699
• 12% have FICO scores of 600-649
• 8% have FICO scores of 550-549
• 5% have FICO scores of 500-549
• 2% have FICO scores below 500

A FICO score by any other name…

There are other names for FICO scores, depending on the credit bureau reporting it. But the calculation is basically the same. The companies reporting FICO-like scores are:

1. Experian, under the name Experian/Fair Isaac Risk Model
2. Equifax, under the name BEACON®
3. TransUnion, under the name FICO Risk Score, Classic (formerly EMPIRICA®)

FICO scores vary based on the completeness and accuracy of your credit history as reported by that company. According to Fair Isaac*, a 100+ point difference in FICO score can produce even a full percentage point difference in interest rate on a 30-year, fixed rate mortgage.

* According to myfico.com, a division of Fair Isaac, as of August 2007. Fair Isaac and FICO are registered trademarks of Fair Isaac Corporation. Other names may be trademarks or registered trademarks of their respective owners.

About CountrywideCredit.com

CountrywideCredit.com is offered by Countrywide Home Loans a division of Countrywide Bank, FSB, along with Experian® and First USA. CountrywideCredit.com offers credit tools and calculators, mortgage rewards credit card, and a comprehensive credit learning center to help educate consumers on credit-related topics.

Credit Articles

The Credit Articles section offers comprehensive information on credit-related topics. Find out how your credit history can impact your credit score and how to you can get a copy of your credit report. Learn how you can help prevent identity theft and more.

Credit & Mortgages

If you’re looking for a home loan start by learning how credit can impact the type of home loans that may be available to you. Learn about the different types of mortgages and refinance products, discover the keys to a successful loan process, learn how you can control your mortgage payment and more.

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Credit Reports

Your credit score is an important financial asset. Whether you’re applying for a car loan or a home loan, lenders will most likely consider the credit score as part of their decision making process. If you’re shopping for a loan, start by learning about your credit score. Find out how you can use Experian’s credit score and daily credit monitor to stay on top of your credit.

Calculators & Tools

Use the credit tools and calculators to help estimate your debt, analyze your credit risk and more. Want to estimate how much money you may be able to save by consolidating your debt? Want to learn how lenders may analyze your credit risk? Take the credit analyzer quiz, download podcasts and interactive workbooks on credit-related topics, use our FREE calculators and more.

Check Your Credit Score Before You Apply for a Loan

Why should you check your credit score? Your credit score is one of the factors that lenders use to determine whether or not to extend credit and the rates they’ll charge you for borrowing. A high credit score often translates to lower interest rates when you borrow. If you’re thinking about applying for a loan, your credit score can help you evaluate your full financial picture. By finding out your credit score, you can research the rates available to you and use that information to negotiate with lenders.

How can you find out your credit score?

While you can get a credit report for free, you’ll need to pay to find out your credit score. Keep in mind that each credit bureau offers its own version of your credit score.

Experian® offers a range of products that offer credit scores in addition to credit reports and daily monitoring. Learn how you can get a FREE copy of your Experian® credit report and credit score with Triple Advantage.

• Your credit score is based on information on your credit report.
• Check to make sure that your credit report does not contain any errors. Inaccuracies in a credit report can impact on your credit score.
• If you find errors in your credit report, you can contact the credit reporting company and dispute the inaccuracies.

Learn About Your Credit Scores, Daily Credit Monitoring and Triple Advantage from Experian®

Your credit score is a 3 digit number based on information in your credit report. Lenders use your credit score to analyze how likely you are to repay debt. If you’re planning to apply for credit – whether it’s a credit card, mortgage, or car loan – you may want to consider reviewing your credit report for accuracy. Errors in your credit report can have a negative impact on your credit score.

In this section:

• Learn how you can get your credit score
• Find out how to handle identity theft through Fraud Resolution
• Found errors in your credit report? Contact Experian Dispute Information
• Comments, questions, or suggestions? Contact Experian
• Get answers to Frequently Asked Questions

Credit Score and Daily Credit Monitoring:

Learn How Credit Impacts Home Loans

If you want to find out how a consumer’s credit profile impacts their ability to obtain a home loan, you’ve come to the right place. If you’re looking for a home loan – whether to purchase, refinance or borrow from home equity – lenders will analyze your credit history before they make a decision. Your credit report and your credit score play an important role in the decision-making process. Before you start the home loan process, it’s a good idea to learn what’s in your credit history and maybe even get your credit score.

So get the scoop on how credit impacts home loans and go on to learn about:

• Types of Home Loans
• How You Can Control Your Mortgage Payment
• Keys to a Successful Loan Process
• Refinance Loans
• Reasons to Consider a Debt Consolidation Loan
• A Combo Loan from Countrywide

How Credit Impacts Home Loans: Interest Rates

The interest rate you’ll pay on your home loan is largely determined by your credit profile. When lenders evaluate your credit report they’re looking to asses the degree of risk – that is the likelihood that you will repay your obligations as agreed. Your credit score is one of the key factors used in evaluating risk – a high score translates to lower risk and a low score translates to higher risk. Financial institutions often price their loan products according to many factors including a borrower’s credit score. So if your credit score is on the low range of the spectrum and you qualify for a loan, lenders are likely to charge higher interest rates on your home loan.

1. What if you have good credit and your home loan rate seems too high?
   • Negotiate with your current lender and ask for a lower rate
   • Consider whether a refinance loan may help you to lower your rate
2. What if your credit is not perfect and your home loan rate seems too high?
   • Try to negotiate with your current lender for a lower rate
   • Shop for other lenders who may offer loan products for a wide range of credit grades

Credit Bureaus: Who are they?

The three biggest credit reporting companies – also called credit bureaus – are:

• Experian®
• Equifax®
• TransUnion®

Experian®, Equifax® and TransUnion® use credit scoring models to evaluate and score the information in an individual’s credit report.

Even though the three credit bureaus use similar formulas to calculate a credit score, you can have different credit scores from each one. It depends on how complete, accurate and up-to-date each of the credit reporting company’s information about you is.

Credit Bureaus and Credit Reports

Credit bureaus keep track of a person’s entire credit history. For instance, if you obtained a credit card as a college student in 1985, the credit bureaus would have that information.

Who’s interested in your credit report?

• Banks and other potential lenders gather information from credit reporting companies to help them decide whether or not to extend credit to potential borrowers.
• Insurance companies use credit reports to make decisions about who to insure and at what price.
• Employers often use information from the credit reporting companies to help make hiring decisions on potential candidates.

Credit bureaus and free credit reports

You’re entitled to a free copy of your credit report:

1. If you’ve been turned down for a loan, insurance policy, or a job because of credit.
2. Under federal law – The Fair and Accurate Credit Transactions Act (FACT) – all U.S. residents are entitled to one free credit report from each of the 3 credit bureaus. Visit www.annualcreditreport.com or call 1-877-322-8228 to find out how you can get a free copy of your credit report.

Remember: Nobody’s perfect. Not the credit bureaus, or borrowers. But if you arm yourself with information, you can help credit reporting companies see you for the responsible person you really are.

Understanding Credit Scores

A credit score is a rating that lenders use to help determine risk for people who borrow money. Your credit score rates how responsible you are about borrowing and repaying money. A high credit score can help you get approved by more lenders and save you money in interest because you can usually get a lower rate.

What’s in a credit score?

Credit scores are based on credit reports, which contain your credit history. The credit score is used by lenders to help predict how risky it would be for a lender to offer you more credit.

The most well-known credit score is called the FICO score, developed by the Fair Isaac Credit Organization. While each credit bureau calculates credit scores using its own unique formula, there’s no mystery to the factors that make up a credit score. MyFico.com, a division of Fair Isaac, offers helpful guidelines to explain what goes into a credit score:

• How promptly you pay = 35% of your credit score
• How much of your credit limits you use = 30% of your credit score
  • So avoid exceeding or maxing out your credit limits
• How long you’ve been using credit = 15% of your credit score
• What types of credit you utilize = 10% of your credit score
  • A secured credit card and high-rate finance company loan don’t do as much for your credit score as an unsecured card and low-rate auto loan
• How much you’ve borrowed recently = 10% of your credit score
• Other factors include:
  • Court judgments
  • Tax liens
  • Number of recent credit checks

What’s a good credit score?

Credit scores typically range from 300 to 850, with the average person scoring in the low 700’s. According to MyFico.com, the median FICO score in the U.S. is 723. But over 40% of the U.S. population scores below that.

Want to learn more about your credit score?

• Get your FREE credit score through Experian®.
• Answer a few questions and let the Credit Analyzer estimate your credit risk

Credit History

Credit history is a person’s or company’s track record for borrowing and repaying money. A person’s credit history helps to determine their credit score. Business people – from lenders to landlords to potential employers – use your credit history and score to determine whether to do business with you. Your credit history helps predict whether you’ll pay them on time, or if you might be a high risk.

What’s in your credit history?

Your credit history includes:

• Details about loans or credit lines in your name.
• Information supplied by creditors, such as:
  • Date the account was opened
  • Amount of loan/credit limit and balance owed
  • Payment terms and payment history
  • Closed or inactive accounts

What’s not included in your credit history?

• Bankruptcies over 10 years old
• Charge-offs or debts placed for collection over 7 years old
• Checking or savings account information
• Your sex, ethnic group, religious or political preferences
• Medical history
• Criminal records

Who can access your credit history?

Usually, accessing your credit history requires your signed consent. Anyone with a good business reason to learn about your financial responsibility and stability can buy your credit history. These include:

• Lenders
• Landlords
• Employers
• Insurance companies
• Companies monitoring to protect you from identity theft
• Child support enforcement agencies

Learn about your credit history

Learning about your credit history is easy, and free. U.S. residents are entitled to one free credit report every 12 months from each of the three U.S. credit reporting companies (credit bureaus). There are several ways of accessing your free report:

• By visiting annualcreditreport.com
• By calling 1-877-322-8228; or
• By completing the form in the Annual Credit Request brochure and mailing it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281