Credit Score Guide ••• How to Get Your FICO Score and Improve Credit Rating

Credit Score Guide

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Consumer Guide to Credit Score:
What is a credit score and How can I improve it?

The Credit Score Guide helps you:

understand the world of credit;
understand how lenders determine the interest rates and credit limits they offer you;
understand how to improve your credit score.

The Credit Score & Analysis allows you to view your credit standing through the eyes of a lender.

Credit scores are being used for everything these days, including mortgages, credit cards, insurance, and even employment decisions. Your credit score can be the number one thing that causes a credit company to say "yes" or "no" to your credit application. Along with the credit report, lenders also buy a credit score based on the information in your credit report. While a credit report can be considered your detailed financial history, a credit score is an objective summary of that information. A credit score measures the likelihood you'll repay what you owe, and it is based on information in your credit report. In other words, it represents your creditworthiness as a number. Keep in mind that when lenders consider a loan or credit application, they generally ask for more information because credit scores are not the only factor they use in making decisions. Many additional factors including applicant's income vs. the size of the loan will be used in determining risk.

With easy access to FICO scores on the internet, consumers get a new level of awareness of credit issues and improved management of household credit.

A credit score is a snapshot of your credit risk at a particular point in time. It is designed to give lenders a fast way to accurately predict the risk involved if they give you a loan. The credit score is quicker and less subjective than reviewing the actual credit report information. It's the credit score that makes it possible to get instant credit at places like department stores and online credit card application sites. If you've ever received "instant" credit at such places, you've benefited from credit scores.

It is generated through statistical models using elements from your credit report. The higher your credit score the more likely you are to be approved for loans and receive favorable rates. Your credit score is a fluid number, and it changes as the elements in your credit report change. For example, payment updates or a new account could cause your score to fluctuate.

Credit scores are an advantage for consumers because they:

Are objective and precise
Result in faster, more accurate credit decisions
Reduce your cost of credit by letting lenders make the best, most efficient decisions

Three Major Credit Bureaus' Credit Score

FICO Score / All Three Bureaus	Equifax Credit Score	Experian Credit Score	Trans Union Credit Score

Know What Lenders see about you

Credit Score

Until recently, your credit score was not available to you. Only lenders and other businesses who used the score could access it. In 2001, however, all of this changed due to pressure from the U.S. Congress, industry, and consumer groups. Now you can get your credit score online instantly on your computer screen.

Credit scoring is a scientific method that uses statistical models to assess an individual's credit worthiness based on their credit history and current credit accounts. Creditors--especially those in the mortgage industry--frequently use the scores when deciding who receives loans because it is a fast, objective way to evaluate a credit report. Each creditor decides what credit score range it considers to be a good risk or a poor risk.

FICO Score

There are literally thousands of score models used in the credit industry which consider different variables for different types of credit. Credit bureaus offer several different types of scores in their product portfolio, appealing to the vast array of creditors and credit applications in the country.

In the 1980s, Fair, Isaac and Company devised a mathematical model to predict the credit risk of consumers based on the data collected from an individual's credit report. Today, the Fair, Isaac (or FICO®) system is the scoring model most widely used by lenders. Fair Isaac is an independent company that came up with the scoring method and software used by banks and lenders, insurers and other businesses.

The score ranges from 300 to 850, with a higher score indicating a lower credit risk. For a score to be calculated, your credit report must contain at least one account that has been open for six months ore more, and at least one account that has been updated in the past six months.

To get the best rate on a mortgage consumers generally need a score of 720 or above. When it comes to credit cards, anything over 700 will let you get best low interest offers.

How Credit Scores Are Used

Most lenders that issue credit or loans such as banks, credit card companies, auto dealers and retail stores use credit scores to quickly summarize a consumer's credit history, saving the need to manually review an applicant's credit report and provide a better, faster risk decision.

Your credit score doesn't just affect whether or not you get a loan; it also affects how much that loan is going to cost you. As your credit score increases, your credit risk decreases. This means your interest rate decreases.

Lenders use the FICO score as a component in how they set the interest rate they will charge for a loan.

This chart shows an example of how interest rates for a mortgage loan can vary based on your credit score:

FICO range	APR
720-850	5.66%
700-719	5.79%
675-699	6.32%
620-674	7.47%
560-619	8.53%
500-559	9.29%

Source: myFICO.com

The difference in these rates illustrates how your FICO score helps determine what you will pay for your loan. The actual interest rate for which you qualify may depend on several other important factors in addition to a credit score, such as your income, down payment, debt-to-income ratios, additional credit related evaluations and other lender-specific criteria.

Learn how responsible credit management can result in interest rate savings over time.

Different types of credit scores

There are many different credit scores in use, but the most widely used score in the financial service industry is the FICO score generated by the Fair, Issac Company. Each credit bureau can also generate its own credit score. The three national credit bureaus each have their own version of the FICO score with their own names. Equifax has the Beacon system, TransUnion has the Empirica system, and Experian has the Experian/Fair Isaac system. The bureau-based credit scores draw on statistics from a large number of consumers across a variety of accounts. Custom scores are generated by individual lenders, who rely on credit bureaus and other information, such as account history, from their own portfolios.

Scores are not just used to rate the credit worthiness of consumers. Lenders also use scores to predict consumer response to offers sent in the mail, the likelihood that account holders will file for bankruptcy or that a consumer will move their account to another lender.

The scores are correlated so a 700 at one bureau is the same as a 700 at another," but because the bureaus might have different information on you, it is not unusual for credit scores to differ by even 50 or more points from one credit bureau to another.

How FICO scores are calculated

A FICO score is based on five key factors:

Your payment history (which accounts for the biggest chunk -- about 35% -- of your score);
How much you owe on all your accounts compared with your available credit (about 30% of your score);
The length of your credit history (about 15%);
How much new credit you've been seeking (about 15%);
The types of credit you use -- is it a healthy mix? (about 10%).

Credit Score Analysis

A personalized credit score analysis tells you what you're doing right and what you're doing wrong. The analysis reveals what your credit score means to you and to lenders. With customized tips for improvement, the credit score analysis is a powerful credit management aid.

Credit score analysis tells you how the lender is likely to evaluate your history. With the personalized guidance available through the credit score analysis service, you will know precisely how to raise your scores -- whether through paying off balances on certain credit cards or even expanding their use of credit.

You will be able to proactively manage their credit.

Why you should check your credit score

Paying attention to your credit score can pay off -- a higher score can snag you a lower interest rate or qualify you for smaller down payment.

Lenders use your score to help determine what terms to offer you when applying for a loan. With this knowledge, you can be better prepared when shopping for a loan.

Know what type of interest rates you should expect to receive