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.

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