Credit, FICO Score

Credit reports and FICO scores

There are 3 credit bureaus: Experian, Equifax and TransUnion. Sometimes information will show up on one credit report and not another. In order to make sure your information is correct, you should review all 3 reports – you can obtain a free copy of each report from You will not however, receive your FICO score.

A credit score is a number ranging from 350 to 850 that provides an overview of credit worthiness. Your score is important because it can impact whether you’ll get a loan and how much you’ll pay for the privilege of taking on that loan. Your credit score is the same as a FICO is an abbreviation for the Fair Isaac Corporation, the first company to offer a credit-risk model with a score. The story could be more interesting but it’s not. Here’s the deal: Bill Fair and Earl Isaac are the founders of the FICO score and it’s named after them.

Before we get into what makes up a FICO score, we should probably talk about the things that don’t:

  • Race
  • Gender
  • Religion
  • Marital status
  • Age
  • Where you live
  • Salary
  • Occupation
  • Employer
  • Employment history
  • Child/family support obligations

Now, something to be aware of, these things SHOULD NOT show up on your credit report but if they do, they should not affect you getting a loan. HOWEVER, if you have a lien or have been taken to court these things could affect you getting a loan. So , it’s very important to check your report annually to make sure you know what’s on there and how it could affect you.

Now that we know what does not make up a FICO score, we should probably talk about how a score is calculated:

35% – Payment History
30% – Amount owed
15% – Length of Credit History
10% – New Credit
10% – Mix of credit

Payment history, which makes up 35% of your FICO score is very important. Something to ask yourself – do you make your payments on time? How often do you make your payments late? Have you ever had anything go to collections? How recently? Have you ever declared bankruptcy? Been foreclosed on? Had a lawsuit, lien, judgement or repossession? Those things do affect you and will affect your ability to get a loan.

Amount owed is how much available credit you have verses credit used. You want to have as much credit available to you as possible. The more credit you have available and aren’t using the better for you. So let’s say you have several credit cards with limits that total abut $20,000. If you are using more than 30% of the available total it’s going to negatively affect your FICO score. The higher your balances verses your limits the worse it looks for you. Not only does it affect your credit score but it actually affects some other numbers that banks look at when determining if you’re credit worthy and will make it harder for you to get a loan. If you have a spotty credit history and you have high credit card balances, this will be a red flag to lenders and your FICO score will reflect it.

Length of credit history makes up 15% of your FICO score. If you took out your first credit card at 18 and hardly use it, you may wonder if you should close it out or keep it open. You definitely want to keep it open. The longer you have credit, the better. Some thing to ask yourself, how long ago did you establish credit? What is the age or your oldest and newest credit account? How long since you last used your oldest credit account? How long since you closed an account? How long since you opened an account? Creditors like to see that you have a strong credit portfolio and that you established credit and were responsible with it.

10% of your credit score is made up of your mix of credit that’s in use. People with no credit cards tend to be viewed as a higher credit risk than those who have managed credit card debt responsibly. A mix of credit cards, retail accounts, installment (auto, personal) loans and mortgages gives you a better FICO score than someone who only has credit cards or has never had an auto or personal loan.

The final 10% of your FICO score is made up of inquiries made and how often your credit report is pulled. Often when you are applying for a loan through a bank or credit union, the bank will pull your credit report through one credit bureau. If you apply for a car loan through a dealership they will put your information into their system and multiple banks and credit unions will be notified if you meet their criteria. This will cause multiple credit reports to be pulled and unfortunately all of those pulls will show up on your credit report as inquiries. This shows banks and credit unions that you are shopping for a loan. While this in itself is not a bad thing, you want to make sure you don’t have more than 5 or 6 inquiries at a time. But sometimes this is out of your control. Inquiries usually fall off your credit report after 3-6 months.

Credit scores are the basis for how high or how low your interest rates will be on a loan, but they are not the determinate of whether or not you will qualify for a loan. The fact is, you could have a FICO score, but the score may not even be valid. The minimum requirements in acquiring a FICO score:

  • At least 1 account opened for at least 6+ months
  • At least 1 account that has been reported to the CB with the past 6 months
  • No indication of deceased on the credit report

But as I said, even if you have a score, it may not be valid. In many cases, in order to have a valid FICO score:

  • You must have at least 2 years of credit history
  • You must have at least 1 revolving line of credit
  • You must have at least 4 tradelines
  • You must have at least one that’s $5000 or more.