breakdown of a credit score · fico fair isaac co rporation the fico ® score is the most widely...
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Breakdown of aCREDIT SCORE
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BeforeCREDIT SCORES• No standard for measuring risk• Up to individual lenders to judge
loan applicants
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What is aCREDIT SCORE?
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A credit score is a number used by financial institutions and credit card companies to determine risk level when issuing you a loan or a credit card.
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FICOFair Isaac Corporation
The FICO® score is the most widely used credit score model in North America.
It was introduced in 1989 by Fair, Isaac and Company, now Fair Isaac Corporation.
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EXPERIAN®EQUIFAX® TRANSUNION®
Since each credit bureau uses its own formula, your FICO score can vary, depending on which bureau supplies the information.
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What does my scoreMEAN?
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Most credit scores are between 300 and 850
300 850
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LOW (<550)
A low score means you could be denied a loan or a credit card
300 850
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MIDDLE (550 to 720)
You might get approved for a loan, but at a higher interest rate
300 850
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PRIME (720+)
Loan approval at the best rates;this is where you want your score to be
300 850
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Why does my scoreMATTER?
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CarPayments
Job Applications
Renting anApartment
Student Loans
Credit scores can influence:
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How are credit scoresCALCULATED?
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The breakdown of a credit score goes like this:
10%Mix of Credit
35%Payment History
30%Capacity
10% New
Credit
15% Length of
Credit
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Making payments on time boosts your score
PAYMENT HISTORY (35%)
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• How much of your available credit you actually use
• The less you use, the better
• Maxing out your lines of credit harms your score
CAPACITY (30%)
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A long history of good credit habits raises your score
LENGTH OF CREDIT (15%)
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• Opening a bunch of new credit lines in a short amount of time hurts your score
• This includes retail credit cards
NEW CREDIT (10%)
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• Revolving credit (e.g, credit cards)
• Installment loans (e.g, mortgages, car loans)
MIX OF CREDIT (10%)
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How do I keep track ofMY SCORE?
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You can request one free credit report per year from each of the major credit bureaus.Visit annualcreditreport.com to get started.
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Space out your requests by a few months so you can check on your credit year-round.
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• Account openings
• Account closings
• Repayment history
• Mix of credit
Things to look for on your credit report that influence your credit score:
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Access through a major credit bureau for a fee (usually $15–$25)
Get a free estimate (not the same formula as FICO, so it won’t be exact) through creditkarma.com
$$$
$0
Need access to your credit score?(You won’t find it on your credit report)
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Sources: FICO, Forbes, FTC Guide to Credit Scores
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