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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 bank files. The most widely used credit
bureau scores are developed by Fair, Isaac and Company. These are
known as FICO scores. Complete information on credit scoring can be
found online at www.myFICO.com.
How does credit scoring help me?
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 have
made big improvements in the credit process. Because of credit
scores:
— People can get loans
faster
— More credit is available
— Credit decisions are fairer
— Credit rates are lower overall
What is a good FICO 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 credit
product.
How can I find out my FICO
score?
You can now purchase your own FICO score at two different sites
on the Internet. Go to www.myFICO.com or
www.equifax.com to access
Score PowerTM, a service brought to you by Fair, Isaac and Equifax.
You'll receive your current FICO score, your Equifax credit report,
a full explanation of your score, and advice for improving your
score over time.
Some lenders also may tell you your
score, if they are using it to make a lending decision. In
California, state law requires lenders to tell you your score if
they use it in connection with your mortgage application. In all 50
states, if you are turned down for credit based primarily on your
score, the lender does need to give you the reasons why your score
wasn't high enough to qualify. This can help you understand your
credit picture and how to improve it.
Note that FICO scores are also called
BEACON® (at Equifax), the Experian/Fair, Isaac Risk Model (at
Experian) and EMPIRICA® (at TransUnion). Any other score is not
your FICO score.
Who can use the FICO® Score
Simulator and how often can they use it? Anyone who purchase a Score
Power report after 5/9/02 may have unlimited access the FICO Score
Simulator on their most recently purchase Score Power report for up
to 30 days after the Score Power purchase date.
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 reasons 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.
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.
FICO® Scoring Facts and Fallacies
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 apply for
credit, so they have the most recent information available.
FALLACY: Credit scoring is
unfair to minorities.
FACT: Scoring does not consider your gender, race,
nationality or marital status. In fact, the Equal Credit Opportunity
Act prohibits lenders from considering this type of information when
issuing credit. Independent research has shown 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: FICO scores evaluate your credit report alone, which
lenders already use to make credit decisions. A score is simply a
numeric summary of that information. In fact, lenders using scoring
can often ask for less information about you. They may have fewer
questions on the application form, for example.
FALLACY: My score will drop if
I apply for new credit.
FACT: Probably not 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. The FICO
score treats these as a single inquiry, which will have less impact
on your credit score.
For
more information visit www.myFICO.com
Copyright © 2000-2001 Fair, Isaac
and Company, Inc. All rights reserved.
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