Score a Better Future - Today.
, by Tom Quinn
Originally written by Tom Quinn for the FICO Blog, edited for brevity by Rob Kaufman.
The FICO® Score you have today doesn't have to be the FICO Score of your future. That's just one of the reasons we hold a series of free educational events as part of the "Score a Better Future" program.
While participating in these events, many attendees have questions. Here are the most commonly asked questions from the people who are trying to better understand and improve their credit scores.
The Top 10 FICO® Score Questions
1) Is my income considered in a FICO Score calculation?
No. FICO Scores focus on credit-related information found in your credit reports. Verified income is not found in your credit report and therefore does not factor into the score calculation.
2) Will closing credit cards help improve my FICO Scores?
Closing credit card accounts may actually have a negative effect on your score.
The impact of closing a credit card account typically occurs when FICO evaluates your credit utilization. In simple terms, credit utilization is the percentage of available credit you're using. The higher the percentage, the greater the risk.
When you close a credit card account, your credit limit decreases. That means when determining your credit utilization, your outstanding balances will be based on a lower credit limit (because you closed the credit card account) which could then decrease your score.
3) What should I do to increase my FICO Scores?
- Access your FICO Scores so you can see where you currently stand and review the negative factors so you can discover why your score is low.
- Create a plan of action based on the score factors that can help you to increase your scores over time. For example, if a negative score factor is "heavy use of available revolving credit", then it's probably a good idea to reduce credit card balances.
- Remember to always pay your bills on time, use your available credit responsibly and only apply for credit when absolutely necessary.
4) I have read that having 30% or lower revolving utilization results in optimal points for this credit attribute. Is this true?
The amounts owed category makes up almost one-third of your FICO Score and includes information such as:
- The balance amount in revolving and installment accounts
- The number of accounts with balances
- The amount of available credit being used.
Generally speaking, a lower credit utilization is better, but there is no optimal percentage.
5) I have a spotty credit history, but that is all behind me now. Will my score ever increase?
The good news is FICO Scores move up or down as your credit report information changes. That means a low score doesn't have to haunt you forever.
As we said in question 3 above, access your FICO Scores and learn what negative factors are impacting them the most. Focus on addressing those behaviors to help improve your FICO Scores over time.
6) I am confused as I have multiple FICO Scores that can differ by 25 points or more in some cases. Why is that?
Multiple FICO Score versions exist because:
- There are three national credit bureaus and FICO Scores are calculated and distributed by each of the three.
- There are "base" versions of the score as well as industry-specific versions for auto loans and credit cards.
- Score algorithms are periodically updated, and the newer versions created by these updates add to the number of available scores.
7) I have some extra money this month! How should I apply this to reduce my debt and increase my credit scores?
Data demonstrates that the amount of revolving debt owed (i.e. credit card balances) tends to carry more weight in a score calculation versus installment type debt owed (i.e. auto or personal loan).
So, if you have some extra money, applying it against your credit card debt versus paying down installment debt may have a greater chance of positively affecting your FICO Scores.
8) Will getting married result in a merged credit report and FICO Score with my spouse?
No, consumer credit reports are created, stored and maintained at the individual level. However, credit obligations opened jointly (more common with mortgages and auto loans for example) will be reported on both person's credit reports.
9) I try to be frugal and search for the best deals. Will rate shopping for the best car financing terms hurt my FICO Score?
Generally, no. However, any time anyone accesses your credit report, it will be posted on your credit report as an inquiry. Inquiries factor into FICO Scores because they indicate that person is actively seeking new credit.
While hard inquiries are considered in FICO Scores, their impact on a FICO Score is relatively minor, typically costing several points. In addition, FICO accommodates for lending scenarios where your credit report is being accessed multiple times even though you are only looking for one loan.
Auto, mortgage and student loan related inquiries that occur 30 days prior to scoring have no effect on the score. Outside this 30-day period, auto, mortgage and student loan related inquiries that occur within any 45-day period are treated as a single inquiry.
10) I have no credit history. How can I start to establish and build credit and have a FICO Score?
Here are some actions you may want to consider if you don't have a credit history:
- Apply for a secured credit card. Most lending institutions offer secured cards. FICO Scores consider the reported secured card information like any credit card. Paying the card balance on time and keeping credit utilization low can help you establish credit.
- Be a co-applicant/authorized user on a credit card or loan. Engage with a trusted family member or close friend who has good credit and would be willing to be a co-applicant with you. The lender will report the performance to the credit bureaus on both applicants, which can help you establish your credit history.
- Periodically use your credit. If you don't use your credit, it could result in not meeting the minimum scoring criteria. Avoid this situation by periodically using a credit card or other revolving credit so that activity on that card is reported to the credit bureau.
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