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     Your FICO® Score is a fast and reliable way to determine your credit worthiness that many lending institutions and mortgage companies rely on. All three major credit reporting bureaus (Equifax, Experian, TransUnion) calculate your score by using the FICO® Scoring model--but there can be minor variations in the scores between each bureau due to slight differences in the information contained in each credit report. You should check your credit reports often with each of the major credit bureaus and investigate any large variations in your scores.  Small differences in scores, pulled at different times, are considered ordinary.

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    Your FICO® Score considers both positive and negative information in all the credit bureaus reports. It's calculated by these 5 categories, the importance of any piece of information depends on the information in your entire credit report: history, amounts owed, length of credit history, new credit, and types of credit.

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     Once you understand how the basic formula is determined, you can take simple steps that will result in a higher credit score, usually within four to six months. FICO® Credit Scores are calculated from data readily available in your credit report. The basic formula consists of five categories determined by your credit data and these categories vary in importance for each credit profile.  The five categories are calculated with the following percentages to determine your credit score:

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      Components:

                   35% Payment History

                   30% Credit Utilization/Amount Of Debt

                   15% Length of Credit History

                   10% Recent Inquiries for Credit

                   10% Types of Credit You Have In Use

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     Payment History

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The most important part of your FICO® Credit Score is your payment history because it indicates to lenders your track record for making payments on time and whether you have missed any payments. Taking advantage of automatic bill pay features often help you avoid being late with any of your payments. Consistent and on time payments of your credit card and installment loans is the best way to improve your credit score.

 

     Credit Utilization/Amount Of Debt

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You should always strive to keep your credit card balances as low as you possibly can.  Your credit Utilization is determined by dividing your total available credit by the amount of credit you currently have outstanding. When your revolving debt level is high, lenders will assume you are a higher credit risk than someone who has a low amount of revolving debt.

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     Length of Credit History

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This percentage is determined by the average age of all of your accounts. Therefore, you should avoid opening too many new accounts at once, or closing accounts that you have a long history of payments and access to credit.

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     Recent Inquires for Credit

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This number consists of any new credit card accounts or loans you may have recently opened, as well as  when you request a new line of credit. “Pre-approved” offers you may receive via the mail or your email are considered soft inquiries and do not impact your FICO® Credit Score. However, if you apply for any of these offers, the lender will then make a hard inquiry on your credit bureau file to evaluate your credit worthiness or risk.

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     Types of Credit You Have in Use

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This category considers the mix of credit you currently have in use. Your score is improved by having a history of managing a variety of different types of credit: like a mortgage, installment loans, and credit cards or revolving lines of credit. 

 

    You are entitled to one free copy of your credit report from each of the three major credit bureaus by logging onto www.annualcreditreport.com. Now that you understand the different components that determine your credit score, it is important to establish a base line and monitor your credit reports regularly.  Often people will request a credit report from a different credit bureau every four months to access their credit score and to make sure there are no surprises listed on their reports.

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      Also you can get your free credit score from your bank, Capital one has credit wise (free to sign-up even if you are not a Capital One client), Chase has a tool called Credit Journey for their customers, as well as Bank of America and Wells Fargo. Free tools that show you a comprehensive credit score breakdown are: www.creditkarma.com and www.creditsesame.com.

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        Questions You Might Have:

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        Why is my FICO® Credit Score important?

 

         Nearly all lenders in the U.S.,  have been using FICO®Scores for over 20 years as the industry standard for determining credit worthiness. 

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        Will receiving and reviewing my FICO® Credit Score from affect my credit?

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        No. Reviewing your credit score, will never impact your credit score.

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        Does my FICO® Credit Score change every month?

 

        According to FICO, 88% of the population experiences changes to their score by up to 20 points month to month. Each time you review your FICO® Score, it's based on the information in your credit bureaus reports at that snapshot in time. As the information in your credit report changes, your FICO® Score may change, but don't worry if it goes down a bit if you are doing the right things it will bounce back up in no time.

 

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