www.MyFico.com  About FICO Scores 1. What is a FICO score? It's 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 FICO score is a snapshot of your credit risk picture at a particular point in time. The higher your score, the lower the risk to lenders. "FICO" is short for Fair, Isaac and Company, which develops the mathematical formulas used to produce these scores. 2. What is a BEACON® score? A BEACON score is a FICO score. FICO scores are calculated by the three major credit reporting agencies - Equifax, Experian and Trans Union - using formulas developed by Fair, Isaac. The FICO scores are known as BEACON at Equifax, EMPIRICA® at Trans Union and the Experian/Fair, Isaac Risk Score at Experian. 3. How are the FICO scores calculated? Every FICO score is calculated at a credit reporting agency using a mathematical formula that evaluates many types of information on your credit report at that agency. By comparing your information to the patterns in millions of past credit reports, the score identifies your level of future credit risk. 4. What's the most important factor in a FICO score? FICO scores consider five main kinds of credit information. Listed from most important to least important, these are: Payment history Amount owed Length of credit history New credit Types of credit in use 5. What do FICO scores ignore? FICO scores do not consider: Your race, color, religion, national origin, sex, or marital status Your age Your salary, occupation, title, employer, date employed, or employment history Where you live Any interest rate being charged on a particular credit card or other account Certain types of inquiries (such as promotional, account review, insurance or employment-related inquiries) Any information not found in your credit report Any information this is not proven to be predictive of future credit performance 6. What are the highest and lowest FICO scores? FICO scores range from 300 to 850. The higher the score, the lower the predicted credit risk for lenders. 7. Why do lenders use FICO scores? FICO scores provide an extremely valuable guide to future risk based solely on credit report data. The higher the consumer's score, the lower the risk to lenders when extending new credit to that consumer. 8. Does everyone have a FICO score? For a FICO score to be calculated on your credit report, the report must contain at least one account which has been open for six months or longer. In addition, the report must contain at least one account that has been updated in the past six months. This ensures that there is enough information - and enough recent information - in your report to compute an accurate score. 8. How often does the score change? Your credit file is continually updated with new information from your creditors. The FICO score is calculated based on the latest snapshot of information contained in your file at the time the score is requested. So your FICO score from a month ago is probably not the same score a lender would get from the credit reporting agency today. Fluctuations of a few points from month to month are quite common. 10. What is a good FICO score? Since there is 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. Your lender may be able to give you guidance on the criteria for a given credit product. 11. How can I improve my FICO score? Your FICO score analysis will suggest things you can do to improve your score overtime. Generally, people with high FICO scores consistently: Pay bills on time Keep balances low on credit cards and other revolving credit products Apply for and open new credit accounts only as needed 12. What is an Equifax Credit Profile? An Equifax Credit Profile is a consumer credit report from the Equifax credit reporting system. It is a picture of how you paid back the companies from whom you borrowed money, or how you have met other financial obligations. 13. What is a FICO score analysis? Our personalized FICO score analysis gives you a detailed, plain-language explanation of your current FICO score. This includes how your score compares to FICO scores nationally and what your score says to creditors about your likelihood to repay. In addition, a review of the reason codes delivered with your FICO score helps you learn what specific factors affected your final score, and what you can do to improve your credit rating over time. 14. How do I know which credit reporting agency I should select for my FICO score? While all three major credit-reporting agencies offer FICO scores for making credit decisions, only the BEACON score from Equifax is available for purchase by consumers. What a FICO® Score Considers Listed in the hypertext links below are the five main categories of information that FICO scores evaluate, along with their general level of importance. Within these categories is a complete list of the information that goes into a FICO score. PAYMENT HISTORY What is your track record? AMOUNTS OWED How much is too much? LENGTH OF CREDIT HISTORY How established is yours? NEW CREDIT Are you taking on more debt? TYPES OF CREDIT USE Is it a "healthy" mix? Please note that: • A score takes into consideration all these categories of information, not just one or two. No one piece of information or factor alone will determine your score. • The importance of any factor depends on the overall information in your credit report. For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score. Thus, it's impossible to say exactly how important any single factor is in determining your score — even the levels of importance shown here are for the general population, and will be different for different credit profiles. What's important is the mix of information, which varies from person to person, and for any one person over time. • Your FICO score only looks at information in your credit report. However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting. • Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your score. Payment History What is your track record? APPROXIMATELY 35% OF YOUR SCORE IS BASED ON THIS CATEGORY. The first thing any lender would want to know is whether you have paid past credit accounts on time. This is also one of the most important factors in a credit score. However, late payments are not an automatic "score-killer." An overall good credit picture can outweigh one or two instances of, say, late credit card payments. By the same token, having no late payments in your credit report doesn't mean you will get a "perfect score." Some 60%-65% of credit reports show no late payments at all your payment history is just one piece of information used in calculating your score. Your score takes into account: • Payment information on many types of accounts. These will include credit cards (such as Visa, MasterCard, American Express and Discover), retail accounts (credit from stores where you do business, such as department store credit cards), installment loans (loans where you make regular payments, such as car loans), finance company accounts and mortgage loans. • Public record and collection items reports of events such as bankruptcies, foreclosures, suits, wage attachments, liens and judgments. These are considered quite serious, although older items and items with small amounts will count less than more recent items or those with larger amounts. • Details on late or missed payments ("delinquencies") and public record and collection items specifically, how late they were, how much was owed, how recently they occurred and how many there are. A 60-day late payment is not as risky as a 90-day late payment, in and of itself. But recency and frequency count too. A 60-day late payment made just a month ago will count more than a 90-day late payment from five years ago. Note that closing an account on which you had previously missed a payment or satisfying a judgment or collection item does not make the late payment or item disappear from your credit report. • How many accounts show no late payments. A good track record on most of your credit accounts will increase your credit score. Amounts Owed How much is too much? APPROXIMATELY 30% OF YOUR SCORE IS BASED ON THIS CATEGORY. Having credit accounts and owing money on them does not mean you are a high-risk borrower with a low score. However, owing a great deal of money on many accounts can indicate that a person is overextended, and is more likely to make some payments late or not at all. Part of the science of scoring is determining how much is too much for a given credit profile. Your score takes into account: • The amount owed on all accounts. Note that even if you pay off your credit cards in full every month, your credit report may show a balance on those cards. The total balance on your last statement is generally the amount that will show in your credit report. • The amount owed on all accounts, and on different types of accounts. In addition to the overall amount you owe, the score considers the amount you owe on specific types of accounts, such as credit cards and installment loans. • Whether you are showing a balance on certain types of accounts. In some cases, having a very small balance without missing a payment shows that you have managed credit responsibly, and may be slightly better than no balance at all. On the other hand, closing unused credit accounts that show zero balances and that are in good standing will not generally raise your score. • How many accounts have balances. A large number can indicate higher risk of over-extension. • How much of the total credit line is being used on credit cards and other "revolving credit" accounts. Someone closer to "maxing out" on many credit cards may have trouble making payments in the future. • How much of installment loan accounts is still owed, compared with the original loan amounts. For example, if you borrowed $10,000 to buy a car and you have paid back $2,000, you owe (with interest) more than 80% of the original loan. Paying down installment loans is a good sign that you are able and willing to manage and repay debt. Length of Credit History How established is yours? APPROXIMATELY 15% OF YOUR SCORE IS BASED ON THIS CATEGORY. In general, a longer credit history will increase your score. However, even people who have not been using credit long may get high scores, depending on how the rest of the credit report looks. Your score takes into account: • How long your credit accounts have been established, in general. The score considers both the age of your oldest account and an average age of all your accounts. • How long specific credit accounts have been established. • How long it has been since you used certain accounts. New Credit Are you taking on more debt? APPROXIMATELY 10% OF YOUR SCORE IS BASED ON THIS CATEGORY. People tend to have more credit today and to shop for credit via the Internet and other channels more frequently than ever. Fair, Isaac scores reflect this fact. However, research shows that opening several credit accounts in a short period of time does represent greater risk especially for people who do not have a long-established credit history. This also extends to requests for credit, as indicated by certain "inquiries" to the credit reporting agencies, resulting from your requests for new credit. An inquiry is a request by a lender to get a copy of your credit report. FICO® scores do a good job of distinguishing between a search for many new credit accounts and rate shopping, which is generally not associated with higher risk. Your score takes into account: • How many new accounts you have. The score looks at how many new accounts there are by type of account (for example, how many newly opened credit cards you have). It also may look at how many of your accounts are new accounts. • How long it has been since you opened a new account. Again, the score looks at this by type of account. • How many recent requests for credit you have made, as indicated by inquiries to the credit reporting agencies. Inquiries remain on your credit report for two years, although FICO scores only consider inquiries from the last 12 months. Note that if you order your credit report from a credit reporting agency such as to check it for accuracy, which is a good idea the score does not count this, as it is not an indication that you are seeking new credit. Also, the score does not count requests a lender has made for your credit report or score in order to make you a "pre-approved" credit offer, or to review your account with them, even though you may see these inquiries on your credit report. • Length of time since credit report inquiries were made by lenders. • Whether you have a good recent credit history, following past payment problems. Re-establishing credit and making payments on time after a period of late payment behavior will help to raise a score over time. Types of Credit in Use Is it a "healthy" mix? APPROXIMATELY 10% OF YOUR SCORE IS BASED ON THIS CATEGORY. The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open credit accounts you don't intend to use. The credit mix usually won't be a key factor in determining your score but it will be more important if your credit report does not have a lot of other information on which to base a score. Your score takes into account: • What kinds of credit accounts you have, and how many of each. The score also looks at the total number of accounts you have. For different credit profiles, how many is too many will vary. Facts & 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. |