What is a FICO score?

Your credit history has been reduced to a three-digit number, and you should know what that number is, especially if you plan on purchasing anything on credit soon.

This three digit number is most commonly nicknamed a FICO score. This is an acronym for Fair Isaac and Co. The folks at FICO will not disclose how these scores are arrived at, however, FICO Claims to use 30 elements to determine risk.

We know for sure that they consider Credit Delinquencies (Have you been late on car payments? Credit Cards? Your Mortgage?) Amount of Outstanding Debt, (Are you ‘maxed-out’ on your credit cards? Do you have several car loans?) Credit History, (How long have you used credit? Do you have a long standing history of paying your bills?) Credit Inquiries, (Have you applied for 15 new Visa cards this month? Department Stores? Shopping for a car?)

Do I have a good FICO Score?

Your score will fall some where between 300 and 900 with most consumers falling somewhere between 500 and 800.

A FICO in the 500’s is a very low score, which translates to lenders as high risk.

In the 600’s is considered a medium score. Your payment history will be closely scrutinized and written explanations regarding the derogatory credit will likely be required prior to issuing any credit. Many mortgage lenders will not lend to someone with a FICO of under 640.

A FICO of 680 or higher is considered a high score, again translating to low risk for the lender and lower costs to the consumer.

There is some very powerful proof of the direct correlation between these numbers and the risks involved. For example, based on FHLMC (Freddie Mac) 1994 loan purchases with repayment performance measured through April of 1996:
Loans with FICO’s of 661or greater had less than 1% foreclosures.
Loans with FICO’s of 620 to 660 had a foreclosure rate of just over 2%

The clearest illustration of the value of these scores is the fact that loans with FICO’s of 619 or less had over 8% foreclosure rate.

So this isn’t to say that if you have a low FICO you can’t get a loan. In financing a home, you will just pay a bit more for it because there is approximately an 8% chance that you will go into foreclosure. In fact, if you do discover you have a low FICO, you are in esteemed company. Two years ago, Federal Reserve Governor Lawrence Lindsey was denied a Toys R Us credit card for a low FICO.

Can I “fix” my credit?

You may want to begin your research by ordering a credit report from ALL THREE of the reporting bureaus below:

Equifax Credit Information Services
Atlanta, GA (800) 685-1111

Trans Union Corporation
Springfield, PA (800) 851-2674

TRW Information Services
Chatsworth , CA (800) 682-7654

This way, if there are any errors on your report you can get them corrected. Credit bureaus are required to respond to your written request within 30 days. It is important that you know that even cleaning up any discrepancies with the credit bureaus will not immediately raise your FICO. Generally, we are seeing a 60 to 90 day time span for either derogatory or positive marks to significantly impact a FICO.

If you find yourself needing to “repair” your credit, please keep in mind that the Credit Repair Companies” can only correct errors. They cannot erase a poor credit history. If the information shown on your report is accurate, no one can remove it until the 7 to 10 year reporting period is up. It may make more sense (I promise it will be cheaper) for you to work with the bureaus yourself.