Credit Score Q&A

Your credit score is the key to obtaining financial products and services.  However, understanding what your credit score means, and how you can improve your score confuses most people.  Hopefully, the information and links on this page will help give you some clarity.

What is the difference between a credit report and a credit score?

According to the Consumer Financial Protection Bureau, your credit report and credit scores are two different things.  A credit report is a statement that has information about your credit activity and current credit situation such as loan paying history and the status of your credit accounts. Your credit scores are calculated based on the information in your credit report.

For more information, click here to visit the Consumer Financial Protection Bureau website.

 

What is credit scoring?

The Federal Trade Commission (FTC) states that credit scoring is a system creditors use to help determine whether to give you credit. It also may be used to help decide the terms you are offered or the rate you will pay for the loan.

Information about you and your credit experiences, like your bill-paying history, the number and type of accounts you have, whether you pay your bills by the date they’re due, collection actions, outstanding debt, and the age of your accounts, is collected from your credit report. Using a statistical program, creditors compare this information to the loan repayment history of consumers with similar profiles. For example, a credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points — a credit score — helps predict how creditworthy you are: how likely it is that you will repay a loan and make the payments when they’re due.


How can I improve my credit score?

The Federal Trade Commission (FTC) suggests the following:

·         Have you paid your bills on time? You can count on payment history to be a significant factor. If your credit report indicates that you have paid bills late, had an account referred to collections, or declared bankruptcy, it is likely to affect your score negatively.

·         Are you maxed out? Many scoring systems evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, it’s likely to have a negative effect on your score.

·         How long have you had credit? Generally, scoring systems consider your credit track record. An insufficient credit history may affect your score negatively, but factors like timely payments and low balances can offset that.

·         Have you applied for new credit lately? Many scoring systems consider whether you have applied for credit recently by looking at “inquiries” on your credit report. If you have applied for too many new accounts recently, it could have a negative effect on your score. Every inquiry isn’t counted: for example, inquiries by creditors who are monitoring your account or looking at credit reports to make “prescreened” credit offers are not considered liabilities.

·         How many credit accounts do you have and what kinds of accounts are they? Although it is generally considered a plus to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many scoring systems consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may have a negative effect on your credit score.

 

Click here to visit the Federal Trade Commission website.

 

What is a FICO Score?

A FICO score is a type of credit score created by the Fair Isaac Corporation.  FICO scores are calculated by the following breakdown:

35% Payment History

30% Amounts Owed

15% Length of Credit History

10% New Credit

10% Credit Mix.

Click here to go to myFICO Credit Education for more information.

 

How can I check my credit report?

The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies—Equifax, Experian, and TransUnion—to provide you with a free copy of your credit report, at your request, once every 12 months. To get your credit report, go to www.annualcreditreport.com, or call 1-877-322-8228. This is the only website authorized by the government to fill orders for free annual credit reports to which you are entitled under law. Once you receive your credit report, thoroughly check the information to ensure that it is accurate and current. 

Click here to visit www.annualcreditreport.com.

 

©Copyright 2012 Traditions First Bank. Member FDIC. Equal Housing Lender.