FICO Credit Score
Most visitors to myFICO.com are interested in knowing or understanding their FICO scores. The FICO score is a numerical expression of the risk posed by a borrower to potential lenders. Fair Isaac takes information from the three credit bureaus and assigns positive or negative points to each piece of data. FICO scores range from 300 to 850, with 680 generally considered as an acceptable average. People with FICO scores of 740 or more tend to get the best rates from lenders. Less than 15% of American credit holders have scores over 800.
Different factors go into the FICO rating, each assigned a different weight in the system. All in all, 22 pieces of data are taken from the bureaus, which are divided into five categories. These are the following:
35%: Payment history. This lists all the payments made by the customer toward current debt. The biggest deductions come from missed and late payments; recent violations can bring the score down by up to 15 points.
30%: Amounts owed. This refers to the total of all current debts. Fair Isaac also considers debt in proportion with the credit limit. Open, revolving, and installment accounts are rated separately.
15%: Credit history. The longer a person has been handling credit, the more stable he or she appears to the lender, assuming that all payments are made on time. This part also states how long each account has been kept open.
10%: Recent credit. New or recent credit is usually considered negative because it adds to already existing credit and suggests that the person is close to overextending. An exception is when one reestablishes good credit after recovering from payment problems. Any recent credit inquiries will also be considered in this department; each inquiry takes one or two points away from the credit score.
10%: Credit types: It’s not enough just to have good and long-standing credit. Fair Isaac prefers credit records that show a good balance between different account types. This means that a diverse account record can make up for a relatively short credit history.
myFICO.com offers advice on understanding and improving credit scores. Other web resources are also provided by the credit bureaus such as Free Credit Report (freecreditreport.com) and Consumer Info (consumerinfo.com) from Experian and True Credit (truecredit.com) from TransUnion. There’s also Credit.com and Credit Report (creditreport.com), which are independent accredited sites.