CREDIT

The Fair Isaac Corporation created a scale, with a range between 350–850, which is used by lenders to measure one’s credit. The resulting number is known as your FICO™ score and provides a snapshot of your credit history expressed by 3 numbers. Inherent in a FICO™ score is the assumption that past long-term behavior will dictate future long-term behavior.

Your credit health is the single most important factor a lender uses when making a loan decision. Your FICO™ score is a crucial part of this credit health. 

Every year, lenders will access billions of FICO™ scores in order to make better lending decisions. These scores are obtained from the 3 credit bureaus, or repositories – Experian, Equifax and TransUnion. When there is a change to your credit (new credit card, increased balance, missed payment, etc.), it is up to the lender to report this to the bureaus. Which bureau they report to is up to the lender. Hence, it is not uncommon for your FICO™ to differ from one bureau to the next. It will not, however, differ by much, and lenders will always focus on the middle score of the 3 provided. Therefore, one of the best ways for you to improve your credit score is by making consistent, timely payments on all accounts. FICO™ watches all types of loans, from revolving loans like credit cards to installment loans like mortgages and student loans.

A higher FICO™ is generally interpreted as less risk to a lender, while a lower FICO™ generally translates into more possible risk. Less risky loans usually carry a lower interest rate, while higher interest rates are associated with lower FICO™ scores. You may wonder how a FICO™ score is generated. The graphic to the left illustrates the basic components that factor into your FICO™ score. 

TIPS TO MANAGE YOUR FICO™

Higher FICO™ Scores are a result of healthy credit behaviors measured over time. Here are a few tips you can follow:

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Pay your bills on time. Delinquent payments and collections can have a major negative impact on your FICO™ Scores. If you’re behind on payments, get current and stay current.

Avoid having payments go to collections. Paying off a collection account will not remove it from your credit report for up to 7 years. It will stay on your report for seven years

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Keep balances low on credit cards and other revolving credit. It’s okay to use your credit cards, just be careful about using a large percentage of your available credit - high utilization rates can have a major impact on your FICO™ Scores.

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Don't close unused credit cards in an attempt to raise your scores. Your FICO™ Scores consider the age of your accounts – the longer your credit history, the better.

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Do your rate shopping for a given loan within a short period of time. FICO™ Scores distinguish between a search for a single loan and a search for a mortgage, student or auto loan, in part by the length of time over which inquiries occur.

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Have credit but manage it responsibly. Ultimately, having a mixture of credit is a good thing —as long as you make your payments regularly and on time. Someone with no credit tends to be higher-risk than someone who has managed their credit responsibly.

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Checking your own credit reports and FICO™ Scores will not lower your scores.

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Source: ficoscore.com