What’s Up With FICO Scores

I had the opportunity to sit down with Kimberlie Hooker from Andorra Credit Repair (www.andorracreditrepair.com) to talk about FICO scores and the common misconceptions about them. The interview was very informative and I learned a lot about what goes into a FICO score and how small things can have a big impact. A FICO score is what a lender looks at when you try to obtain credit, for example a mortgage lender will look at your FICO score to determine what type of interest rate you get. One thing to know is that a credit score, unless it says it is a FICO score, is not what lenders see and it can in fact be significantly different from your FICO score.

There are five different things that affect a credit score: payment history, capacity, credit history, types of credit and new credit. Paying attention to each of these is extremely important to maintaining good credit.

She also mentioned the opportunity given to consumers to check their credit reports once a year through each of the three agencies, Transunion, Equifax and Experian. By going to the site www.annualcreditreport.com you have access to your credit reports from these three agencies for free. But remember that these are only your credit REPORTS, not credit scores. The place to get your accurate credit score is myfico.com. BUT you will be charged to get your FICO score.

Check back for our next installment in our Credit Month series.

Post a comment if you have any questions about credit or suggestions for future shows.

-Kelsey Balcaitis, Talking Cents Team Member

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2 Comments »

I recently listened to the “What’s Up With FICO Scores” podcast, and I learned some interesting facts. The concept of a FICO score is far reaching, yet few people truly understand what it is or how it affects them. It turns out that while these numbers play a relatively miniscule role in the daily lives of most college students, they will deeply impact our financial future in just a few years. This means that in order to be prepared, credit buildup needs to start now. The key parts of building credit are making on-time payments, maintaining an appropriate credit limit, credit history, credit mix, and exercising caution before jumping into too many credit offers. The best way to check one’s credit is through annualcreditreport.com, which is mandated by the government so that individuals can verify the accuracy of their FICO scores.

I wonder, however, why banks and lenders put such faith into a system that won’t share its exact methods of calculating one’s credit score. As a lender, I would want to know more than the inputs—I would want to know how the inputs are manipulated to reach the final number. I think such calculations could be controversial from a borrower’s perspective, especially since they are only estimates, not true predictors. I would be interested on hearing thoughts from both sides on this issue.

Comment by Jon W — August 29, 2008 @ 12:32 pm
I would first like to say that it was very informative and helpful. I am a senior graduating in December and getting lines of credit for a car or home is very important in the near future. I would just like to ask a couple questions. First, if I have a credit card in my name but connected to my parents account, does that help my FICO score? Second, I heard from the podcast that 30% is a good level for a credit card balance compared to credit limit, but is it better to pay it all off right away and have a balance near zero? I know interest fee wise that it would be better to pay it off but would it be better for the FICO score?

I would also like to suggest that in the future you put out a podcast about personal investment for younger adults, like those just graduated or even still in college. I would just like to hear what the experts suggest a 20-26 year old should do with the money they make right away, and how they can go about doing it.

Comment by Kurtis — August 29, 2008 @ 12:33 pm

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