In this episode, we discuss everything about credit scores! How the FICO score came into being and how the score effects some of the biggest financial decisions you make. We’ll examine credit reports and how the information on them can positively or negatively impact your FICO score. Most importantly, we'll tell you how to best improve your credit score.
History of FICO Score:
- Bill Fair & Earl Isaac started the Fair & Isaac Company (FICO) in the 1960’s.
- It is a measure of consumer credit risk and has become a fixture of consumer lending in the United States.
- In 2013, lenders purchased more than 10 billion FICO scores.
- 30 million American consumers access their scores.
FICO scores are now widely used by:
- Insurance and utility companies.
- Cable/satellite/mobile phone providers.
- Landlords or rental management companies, and many others.
Consumers with Lower FICO scores:
- Pay more for the services they seek.
- Have to put a large deposit down to be approved.
- Have a greater chance of being turned down.
- Pay more in interest and require more money down.
How to Obtain Your Score
- Most Credit Card companies and banks offer free credit scores now, so don't pay for it.
- You can also use Credit Karma, an app for iPhone and Android that will keep you aware of your score and even help you understand how you can improve your score.
Building and improving your credit takes time. Unfortunately, there is no quick fix if you find yourself with a bad score.
Educating Yourself Leads To:
- Confidence when making a decision.
- Potentially savings hundreds of dollars a month, and 10’s of thousands of dollars over your lifetime.
- Basic steps to protect your identity.
- Free ways to manage your own credit. You don’t need to hire anyone.
- Ability to fix credit errors without paying anyone.
Credit Reporting Bureaus
- Experian, Equifax, and Transunion.
- See your actual reports from each credit bureau once a year at www.annualcreditreport.com.
- Free credit score:www.creditkarma.com. Also available on Apple Store and Google Play.
- Understanding Credit: Visit - www.myfico.com/credit-education/improve-your-credit-score/.
Credit score rankings:
Credit Score ranges between 300-850
- 300-620 - Bad
- 620-660 - Fair
- 660-720 - Good
- 720-850 - Excellen
How credit score is weighted:
- 35% - Payment History
- 30% - Amount Owed
- 15% - Length of Credit History
- 10% - New Credit
- 10% - Credit Mix - Types of credit
Ways to improve your credit score.
- On time payments - largest portion of your score - 35%.
- Paying more than the minimum payment.
- Credit Used - 30% or more of available credit used will significantly impact your score.
- Keep credit use under 30% of available credit.
- Length of credit
- Less than 2 years will not give you a good score
- 5-6 years midrange - improves you score
- 7+ years - good to excellent
- Credit Inquiries
- Hard inquiries
- Credit applications (car, home mortgage, credit card)
- Multiple hard inquiries in a short time is negative
- Can stay on your report up to 2 yrs
- Soft inquiries
- Insurance, Phone, Utilities.
- Background checks.
- Checking your credit without your permission. Doesn’t damage your score.
- Hard inquiries
- Credit Mix
- Auto, Furniture, Mortgage, Credit Cards, Multiple Cards
- The more they see you handle debt, the more comfortable they are lending you money.
Credit Repair Links
Experian - https://www.experian.com/disputes/main.html
- The FICO score is not your identity - It’s a measure of creditworthiness
- It’s not a badge of honor to wear nor is it an accurate measure of who you are if your score happens to be low right now.
- The FICO score is just a tool that’s part of a system which our country’s financial institutions use.
- Be wise. Learn all you can about it so you can make it work for you instead of it working against you but stop shy of letting it dictate who you are.