Lending Club Blog

How Well Do You Know Your FICO Score?

If you want to effectively manage your credit score, it helps to know your FICO score.  FICO is a measure of your credit habits using a formula from Fair Isaac Corporation. Other entities offer their own versions of a credit scores, including the credit agencies and even your lender. Many others who are interested in discovering your level of fiscal responsibility at a glance use variations of the FICO formula to come up with a score. These subtle differences, plus the differences in information reported by different agencies, accounts for the reason that you may end up with more than one score.

The key to ensuring that your score is generally positive is learning how to manage your FICO score. Understanding some of the basics of the FICO scoring system can help you make better financial decisions, and determine in what areas of your financial picture you need to improve.

Main Elements that Contribute to Your FICO Score

When figuring your FICO score, Fair Isaac relies on information about your credit habits, as reported by the major credit bureaus. Here are the five main elements of a FICO score:

1. Payment History (35%): This is the most important aspect of your score. This is the meat of your credit habits, reflecting whether or not you pay on time. If you miss payments, or pay late regularly, your FICO score will reflect that, and warn lenders that you might be a credit risk.

2. Credit Utilization (30%): The next important factor is how much of your available credit you are using. If your credit card balances are close to the limit, your score will be negatively impacted. You can improve your score by paying down debt so that there is more space between what is available to you and what you owe.

3. Length of History (15%): In order to have a credit score, you have to have used credit. A long history of credit use can be an indication that you understand how to use credit responsibly. This factor is one of the reasons that many financial experts recommend that you keep your oldest credit card account active – it positively influences the history part of your FICO score.

4. Types of Credit You Have (10%): The kind of credit you have does matter. The FICO score formula takes into account your mix of installment and revolving loans. Payday loans count against you, and department store credit cards are not as positive as cards issued by major banks.

5. Credit Inquiries (10%): The final 10% of the formula considers how much credit you are applying for. Applying for a great deal of credit in a short period of time can negatively impact your score.

Once you understand what goes into your FICO score, you can adjust your habits to better manage your credit score.

Keeping Tabs on Your Credit Score

Check your credit score regularly to get an idea of where you are. This is especially important if you plan to apply for a mortgage in the near future, since your FICO score is one of the most important factors in whether or not you qualify, and the terms that you end up with. Here are some ways to keep track of your credit score:

  • CreditReport.com: You can monitor and track your credit score from all 3 bureaus (Equifax, TransUnion and Experian) practically real time.  They offer a 7-day free trial, but after that there is a monthly fee.
  • MyFICO: You can go to the source and pay for a one-time score and report, or you can sign up for regular access for a monthly fee.
  • CreditKarma: This site allows you to keep track of your TransUnion score for free. Realize that it might differ from your official FICO score, though.
  • Quizzle: You can see your Experian credit score for free at this site. As with CreditKarma, it will probably differ from your FICO score.
  • Credit Bureaus: You can straight to the bureaus, Equifax, TransUnion and Experian, to see the scores from those bureaus. You can pay for your scores separately or as part of a report, or sign up for regular access through a monthly fee.
  • Identity Protection Services: These services often include credit score access as part of their monthly fees.

Do you know your score?   Or places to help you track it better?  Drop us a comment below.

Monday, November 8th, 2010 at 7:22 am

Comments (3)

  1. [...] How Well Do You Know Your FICO Score? [...]

    November 9th, 2010 at 12:41 am

  2. Jack L:

    Frankly, I’ve never thought of each what exactly affected the FICO
    score. Very clear break down, but still so confusing on the impact
    of changes to your finances.

    November 10th, 2010 at 12:31 am

  3. Indeed, very clear breakdown. This is very interesting and hard to
    understand if you’re not following your finances. I am glad I have
    a good score.

    November 29th, 2010 at 6:11 am

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