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myFICOsm
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The
FICO®
Score,
available to you directly from Fair Isaac, is the score that lenders use to
assess your creditworthiness. The score, along with the data on your
credit report, help determine the rates and amount of loan you might qualify
for.
Why would you need or want a
FICO®
Score?
The "myFICOsm
" score is provided to consumers by Fair Isaac, Inc., and is
the standard for credit scoring used by lenders.
What is a credit score?
How credit scoring helps you.
What is a good score to get?
Tips for raising your credit score.
What if I'm turned down for credit?
Scoring facts and fallacies.
What is a credit score?
A
Credit Score
is a number lenders use to help them decide: "If I give this person a loan
or credit card, how likely is it that I will get paid back on time?" A
score is a snapshot of your credit risk picture at a particular point in
time.
There are many types of credit scores,
but the most commonly used are credit bureau scores. Credit bureau
scores are based solely on information in consumer credit reports maintained
at one of the credit reporting agencies. Other types of scores may
also include information from credit applications or files.
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How Credit Scoring Helps You:
Credit scores give lenders a fast,
objective measurement of your credit risk. Before the use of scoring, the
credit granting process could be slow, inconsistent and unfairly biased.
Credit scores — especially FICO® scores,
the most widely used credit bureau scores — have made big improvements in
the credit process. Because of credit scores:
- People can get loans faster.
Scores can be delivered almost instantaneously, helping lenders
speed up loan approvals. Today many credit decisions can be made within
minutes. Even a mortgage application can be approved in hours instead of
weeks for borrowers who score above a lender's "score cutoff." Scoring
also allows retail stores, Internet sites and other lenders to make
"instant credit" decisions.
- Credit decisions are fairer.
Using credit scoring, lenders can focus only on the facts related to
credit risk, rather than their personal feelings. Factors like your
gender, race, religion, nationality and marital status are not considered
by credit scoring.
- Credit "mistakes" count for less.
If you have had poor credit performance in the past, credit scoring
doesn't let that haunt you forever. Past credit problems fade as time
passes and as recent good payment patterns show up on your credit report.
Unlike so-called "knock out rules" that turn down borrowers based solely
on a past problem in their file, credit scoring weighs all of the
credit-related information, both good and bad, in your credit report.
- More credit is available.
Lenders who use credit scoring can approve more loans, because credit
scoring gives them more precise information on which to base credit
decisions. It allows lenders to identify individuals who are likely to
perform well in the future, even though their credit report shows past
problems. Even people whose scores are lower than a lender's cutoff for
"automatic approval" benefit from scoring. Many lenders offer a choice of
credit products geared to different risk levels. Most have their own
separate guidelines, so if you are turned down by one lender, another may
approve your loan. The use of credit scores gives lenders the confidence
to offer credit to more people, since they have a better understanding of
the risk they are taking on.
- Credit rates are lower overall.
With more credit available, the cost of credit for borrowers decreases.
Automated credit processes, including credit scoring, make the credit
granting process more efficient and less costly for lenders, who in turn
have passed savings on to their customers. And by controlling credit
losses using scoring, lenders can make rates lower overall. Mortgage rates
are lower in the United States than in Europe, for example, in part
because of the information — including credit scores — available to
lenders here.
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What is a good score to get?
Since there's no one "score cutoff"
used by all lenders, it's hard to say what a good score is outside the
context of a particular lending decision. For example, a FICO score of
750 may qualify you for a platinum credit card, whereas a score of 675 may
indicate you're a better match for a standard card. Your lender may be
able to give you guidance on the criteria for a given product.
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Tips for raising your credit
score:
- Score reflect payment patterns
over time with more emphasis placed on recent information. To
improve a credit score:
- Pay your bills on time.
Delinquent payments and collections can have a major negative impact on
your score.
- If you have missed payments, get
current and stay current. The longer you pay your bills on
time, the better your score.
- Be aware that paying off a
collection account will not remove it from your credit report.
It will stay on your report for seven years.
- If you are having trouble making
ends meet, contact your creditors or see a legitimate credit counselor.
This won't improve your score immediately, but if you can begin to
manage your credit and pay on time, your score will get better over
time.
- Keep balances low on credit cards
and other "revolving" credit. High outstanding debt can affect
a score.
- Pay off debt rather than moving it
around. The most effective way to improve your score in this
area is by paying down your revolving credit. In fact, owing the
same amount but having fewer open accounts may lower your score.
- Don't close unused credit cards as
a short-term strategy to raise your score.
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What if I'm turned down for
credit?
If you have been turned down for
credit, the Equal Credit Opportunity Act (ECOA) gives you the right to
obtain the reaons why within 30 days. You are also entitled to a free
copy of your credit bureau report within 60 days, which you can request from
the credit reporting agencies. (Click
here for more information on how to dispute inaccuracies. This information
is provided by TrueCredit.com)
If the score was a primary part of the
lender's decision, the lender will use the score reason codes to explain why
you didn't qualify for the credit. (They often may not tell you your
score, because the reasons behind it are more useful--but you can ask.)
If your credit application was turned
down, or you didn't qualify for the interest rate you wanted, ask your
lender how you can improve your credit picture.
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Scoring Facts and
Fallacies
Fallacy: My score determines
whether or not I get credit.
Fact:
Lenders use a number of facts to make credit decisions, including your
FICO score. Lenders look at information such as the amount of debt you can
reasonably handle given your income, your employment history, and your
credit history. Based on their perception of this information, as well as
their specific underwriting policies, lenders may extend credit to you
although your score is low, or decline your request for credit although
your score is high.
Fallacy: A poor score will
haunt me forever.
Fact:
Just the opposite is true. A score is a "snapshot" of your risk at a
particular point in time. It changes as new information is added to your
bank and credit bureau files. Scores change gradually as you change the
way you handle credit. For example, past credit problems impact your score
less as time passes. Lenders request a current score when you submit a
credit application, so they have the most recent information available.
Fallacy: Credit scoring is
unfair to minorities.
Fact:
Scoring considers only credit-related information. Factors like gender,
race, nationality and marital status are not included. In fact, the Equal
Credit Opportunity Act (ECOA) prohibits lenders from considering this type
of information when issuing credit. Independent research has been done to
make sure that credit scoring is not unfair to minorities or people with
little credit history. Scoring has proven to be an accurate and consistent
measure of repayment for all people who have some credit history. In other
words, at a given score, non-minority and minority applicants are equally
likely to pay as agreed.
Fallacy: Credit scoring
infringes on my privacy.
Fact:
Credit scoring evaluates the same information lenders already look at —
the credit bureau report, credit application and/or your bank file. A
score is simply a numeric summary of that information. Lenders using
scoring sometimes ask for less information — fewer questions on the
application form, for example.
Fallacy: My score will drop if
I apply for new credit.
Fact:
If it does, it probably won't drop much. If you apply for several credit
cards within a short period of time, multiple requests for your credit
report information (called "inquiries") will appear on your report.
Looking for new credit can equate with higher risk, but most credit scores
are not affected by multiple inquiries from auto or mortgage lenders
within a short period of time. Typically, these are treated as a single
inquiry and will have little impact on the credit score.
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© 2000-2001 Fair, Isaac and Company, Inc |
