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How your FICO Credit Scores are Calculated

May 21, 2018 by  
Filed under Blogs, Credit Score

Credit Score FICO

There are three major credit reporting agencies in the U.S. – Experian, Equifax, and TransUnion. These credit reporting agencies, sometimes referred to as credit bureaus, maintain records of your credit data as well as other personal information such as your name, aliases, addresses (both current and previous), phone numbers, employers, date of birth, social security number, etc…. This collective data gathered on you is referred to as your credit report. Each credit bureau maintains their own credit report which means that you have a separate credit report with Experian, Equifax, and TransUnion.

When you apply for a loan, open a new account, make a payment, miss a payment, etc…, that information is reported from your credit lender to the credit reporting agencies. Due to the fact that credit reporting is 100% voluntary, some lenders may only end up reporting the data to one or two of the three bureaus or reporting the data at different times/dates which may cause you to have differing information on your credit reports and in-turn cause variations in your credit scores.

Here’s more detail on why your credit scores differ.

Now, let’s take a look at the basic information reporting in your credit reports.

A. Personal Information
Credit reports display the personal information such as your name, aliases, address (both current and previous), social security number, date of birth, employer (both current and previous), phone numbers, etc…. It is important to note that personal information does not impact your FICO scores.

B. Account Information
Credit reports display your credit accounts (both active and closed). Each account is reported as a trade-line which contains approximately 40 data points of information such as the date the account was opened, date closed, balance, credit limit/high credit, status, payment history, ECOA code, comments/remarks, address identification code, etc…

C. Inquiry Information
Credit reports also display requests for your credit file from the past 2 years, also known as inquiries. There are 2 different types of inquiries, hard inquiries which impact your credit scores and are applications for credit initiated to obtain credit Soft inquiries do not impact your credit scores, they are “account review” inquiries initiated either by yourself when checking your own credit or by creditors to may wish to send you a pre-approved offer of some sort. Soft inquiries DO NOT impact your FICO scores.

D. Derogatory Information
Your credit report also displays any past delinquencies reported by your creditors or third party data furnishers such as collection agencies. This information includes late payments, past due balances, collections, charge-offs, repossessions, as well as public record information such as judgments, tax liens, and bankruptcy.

How to read a credit report

This data is then plugged into one of the FICO scoring algorithms which then calculates a score to determine your creditworthiness.

NOTE: The FICO score’s original goal was to determine a consumer’s likelihood of becoming 90 days or more past due on a loan within the next 2 years. This is why the payment history and account activity from the last 2 years has the most impact on your credit score.

As the information and data in your credit report change so do your FICO credit scores.

FICO scores are calculated on request and considering that data on your credit reports is constantly changing, your FICO credit score will reflect those changes.

More Information
What are FICO Scores?
5 Components of your FICO credit scores
Why are your credit scores different
Why your FICO credit scores matter

 

Why Choose CreditFirm.net?

Assurance. Our Credit Repair process was developed by experienced attorneys.

Speed. Documents are typically processed and sent out for investigation within 3-5 days.

Support. Award winning customer service guarantees your satisfaction.

CreditFirm.net Review

What are FICO Scores?

May 19, 2018 by  
Filed under Blogs, Credit Score

Credit Score FICO

If you’ve ever applied for any type of credit ranging from credit cards to mortgages or auto loans you have probably heard the term FICO score. That’s because there’s a 90% chance that your lender used the FICO credit scoring model to determine your creditworthiness and ability to repay the debt. In short, a FICO score is the preferred credit scoring model for the majority of the lending industry.

According to a recent CEB TowerGroup analyst report, FICO Scores are used in over 90% of U.S. lending decisions. That means that your FICO score determines not only whether you will be approved for a loan but, also the interest rate that you will be charged among other loan terms like the amount of down payment which you will need in order to be approved.

FICO, short for the Fair Isaac Company, developed the credit scoring model back in the 80’s to help lenders gauge a consumers likelihood of becoming 90 days or more past due on a loan within the next 2 years. Ever since, lenders have been using the FICO score to objectively and consistently determine the risk of lending to a borrower.

The FICO score, there are actually 49 different FICO scores, is a 3 digit number that typically ranges from 300-850 though, some industry-specific FICO scores can range from 250-900. A higher FICO score represents a lower credit risk and a lower FICO score represents a higher credit risk to the lender.

Good Bad Credit Score Chart

The FICO scores themselves are based on the data collected from your credit reports managed by the three major credit reporting agencies (Experian, Equifax, and TransUnion). This data is then quantified in a mathematical algorithm to determine a credit score.

Every lender has their own standards for determining what constitutes a good credit score and the terms/interest rates that they will make available to a consumer at a certain FICO credit score but, the average FICO score in the U.S. is 695 and in order to qualify for the best programs with the best terms you should set your goal for at least a 740 FICO score.
Every industry also has their own FICO scoring model setup to determine what they deem to be a creditworthy borrower. Auto lenders care more about your previous auto lending history and mortgage lenders care more about your previous home loans, so, FICO created scores for those industries which weigh certain accounts differently. Auto lenders use FICO Auto Scores while most credit card companies use FICO Bankcard Scores.

Different Credit Scores

More Information
How your FICO credit scores are calculated
5 Components of your FICO credit scores
Why are your credit scores different
Why your FICO credit scores matter

 

Why Choose CreditFirm.net?

Assurance. Our Credit Repair process was developed by experienced attorneys.

Speed. Documents are typically processed and sent out for investigation within 3-5 days.

Support. Award winning customer service guarantees your satisfaction.

CreditFirm.net Review

A New FICO Score is Here

May 16, 2018 by  
Filed under Blogs, Credit Score

Credit Score FICO
According to the Fair Isaac Company, FICO recently released a brand new variation to it’s FICO credit scoring model. FICO Score 9, FICO Auto Score 9, and FICO Bankcard Score 9 have all recently hit the market and although adoption of the new algorithms is so far very limited, we can assume that over the course of the next few years more and more lenders will start using this new scoring model. So let’s take a look at this “new generation” FICO score and the impact that it will have on your ability to get credit.

What’s New With FICO Score version 9?

One big change to the new version of the FICO score is that it no longer takes paid collections into account when scoring your credit. Previously, a paid collection would still be considered a red mark on your credit report and lower your FICO score but, the new version of the FICO 9 score does not score PAID collections. Therefore, if you paid off a third-party collection, no matter whether it’s $5 or $50,000, it will not have a negative impact on your FICO 9 Score.

NOTE: 90% of credit borrowing decisions are calculated using the FICO score but, most lenders are still using older versions of the FICO scoring models which take paid collections into account which still lower your credit scores.

Different Credit Scores

Another significant change to the new FICO score is that it scores medical collections differently from other collection accounts. In previous models, all collection accounts were scored the same whether they were for charged-off credit cards, utility bills, or medical bills. The new scoring model from FICO treats unpaid medical collection accounts differently than other types of unpaid collections. If you have unpaid medical collections on your credit reports, they will have less of a negative impact on your new FICO score than other unpaid collection accounts.

Finally, in order to help consumers with very a limited credit history, FICO version 9 includes a new algorithm used for scoring rental history. When reported, your rental history factors into FICO 9 score by taking a comprehensive view of your rental paying history. This should help millions of Americans who pay their rent but, don’t have a credit score, get a fair assessment of their creditworthiness.

Ultimately, it may take years or even decades for this new scoring model to be fully adopted by the lending industry or it may never happen altogether but, it’s nice to know that the powers that be are working on making lending a much more fair and accurate assessment of a consumer’s creditworthiness.

 

Why Choose CreditFirm.net?

Assurance. Our Credit Repair process was developed by experienced attorneys.

Speed. Documents are typically processed and sent out for investigation within 3-5 days.

Support. Award winning customer service guarantees your satisfaction.

CreditFirm.net Review

Why Are Your Credit Scores Different?

May 6, 2018 by  
Filed under Blogs, Credit Score

Credit Score Differences

Ever wonder why your credit scores are so different? You apply for an auto loan and your FICO score is 704 and a few weeks later you apply for a credit card and your score is 654. One inquiry could not have possibly dropped your credit scores 50 points in just 2 weeks but, this is a real issue that a lot of people face on a daily basis.

So, let’s dig down into why your credit scores vary so much.

First off, the variation in credit scores is due to the fact that there are dozens of different credit scores with different score ranges. There are 49 different FICO scores, some with a range of 300 – 850 and other industry-specific FICO scores which range from 250 – 900. VantageScore v3.0 ranges from 300 – 850 but, VantageScore v2.0 ranges from 501-990. The PlusScore ranges from 330 – 830 but, an Equifax Power Score ranges from 280 – 850, so depending on the type of scoring model that you’re looking at, the score will vary.

A 720 FICO Classic v5.0 score will place you in the “Good Score” range and mean that you should be able to get approved for some of the best rates and terms on loans but, a 720 VantageScore v2.0 puts you in the “Bad Score” range leading to high-interest sub-prime terms and interest rates.

On top of that, even scores that have the same ranges vary depending on the type of industry that is pulling your reports. FICO scores for the mortgage industry give more weight and importance to previous mortgage loans, auto lenders have different FICO Scores (i.e. Auto Industry Option Score) which gives more weight and importance to previous auto loans. If you apply for a credit card you will get a completely different score because the score that Credit Card companies use gives more weight and importance to previous credit card accounts, etc….

Finally, The Fair Isaac Company (FICO) gives lenders the ability to modify their scoring models so if Chase bank pulls a credit score using the same model that Citibank uses, you still might end up with a different score since Chase may have modified certain data points in the algorithm to adjust for their internal analytics of what constitutes a creditworthy consumer. Ultimately, no 2 credit scores are going to be the same unless you’re having them pulled from the same credit bureau, via the same scoring model, from the same lender.

Now that we have all of that out of the way, let’s take a look at the most simple and obvious explanation of why your scores could vary. That answer, of course, would be if you have your credit scores pulled from different credit bureaus. The 3 credit reporting agencies (Experian, Equifax, and TransUnion) are 3 private companies which maintain 3 completely different credit files for each consumer. Some credit furnishers don’t report to all three bureaus, instead, they may only report to one or two of the bureaus leading to different information reporting on your credit reports. So, if your Experian credit file is reporting 13 inquiries, 6 collections and 2 charge-offs and your TransUnion credit file is reporting 4 inquiries, 1 collection, and 1 charge-off, you can understand why your scores may differ. The different information would lead to different scores, it is not uncommon to see a 50 point discrepancy between scores reported by different credit bureaus.

So the next time you see a large variance in your credit scores, don’t be surprised. Instead, do your due diligence and find out what is causing the discrepancy.

And if you’re interested in improving your credit scores, CreditFirm.net is always here to help.

 

Why Choose CreditFirm.net?

Assurance. Our Credit Repair process was developed by experienced attorneys.

Speed. Documents are typically processed and sent out for investigation within 3-5 days.

Support. Award winning customer service guarantees your satisfaction.

CreditFirm.net Review

Your Plan to a Better Credit Score

March 21, 2018 by  
Filed under Blogs, Credit Repair

work

Improving your credit can seem overwhelming but, there are a few simple steps that you can take to increase your credit scores. So if you’re ready to change your credit follow this plan.

Check your credit report

The first thing that you want to do is check your credit reports. Make sure that you get copies of all 3 credit reports from the 3 credit bureaus; Experian, Equifax, and TransUnion because some accounts may only report on one bureau and not the others.

You can get your credit reports for free once a year from all 3 credit bureaus at www.annualcreditreport.com.

Once you have your reports, review them. Make a list of any inaccurate, incomplete, outdated, or questionable information and file disputes with the 3 credit reporting agencies to correct the errors.

In most cases, removing inaccurate, incomplete, outdated, or questionable information from your credit reports will increase your scores.

Pay down your credit cards

Your credit card utilization accounts for approximately 30% of your overall credit score. Maxing out your credit cards and carrying very high balances makes you look like you’re living off your credit cards and don’t have enough cash to pay your debt.

Ideally, your credit card utilization rates should be at or below a credit card utilization rate of 20%. This means that your credit card balance should be 20% of your overall credit limit. For example, if the credit limit on your credit card is $1,000.00 your balance should not exceed $200.

Lenders consider consumers with high credit card utilization rates as high-risk for default because they may be one financial issue away from not being able to pay their debt. Conversely, consumers with low credit card utilization rates are considered as low-risk because they only use a small portion of their available credit and have a little buffer of available cash in case a financial issue arises.

Ultimately, you want to work on paying down your credit card balances to a credit utilization rate of 20% or less because it will increase your credit scores and make you look more attractive to potential lenders.

Pay your bills on time

Your payment history plays the largest part in influencing your credit scores. Paying your bills late is a surefire way to destroy your credit. When you decide to take action on improving your credit scores, it is of the utmost importance to pay your bills on-time, every time.

The last 6 months of your payment history has the greatest impact on your credit scores so work on putting together 6 straight months of perfect payment history and you will see your scores go up.

Determine whether or not you may need to establish credit

If your credit report does not contain any open and active revolving accounts, establishing some credit by opening a credit card will help to increase your scores. A new credit card will help potential lenders show that you have changed your ways by paying your bills on time and keeping a low credit utilization rate.

As your credit card ages, it will grow your ‘length of credit history’ which is 15% of your credit score.

If your credit lacks any open accounts, obtaining a credit card will help boost your credit scores.

Note: If you can’t get approved for an unsecured credit card, try applying for a secured credit card or ask a family member to add you as an authorized user to one of their cards.

Limit your credit applications

Every time you apply for credit, a hard inquiry is added to your credit report. An inquiry is a record of you applying for credit and having too many inquiries will lower your credit score.

If you absolutely must apply for credit, like in the example above where you need to establish credit, limit yourself to one inquiry every 6 months. Otherwise, stop applying for credit and as your old inquiries age off your reports, your scores will increase.

Consider hiring a reputable credit repair service

If you’re interested in improving your credit scores, hiring a professional credit repair service to work on removing past derogatory information is paramount to getting the most out of your credit repair. CreditFirm.Net has helped thousands of consumers just like you remove negative information from their credit reports and improve their credit scores. Since 1997, we have helped our clients purchase homes, get low-interest auto loans, and save millions of dollars by improving their credit scores. Will you be our next success story?

 

Why Choose CreditFirm.net?

Assurance. Our Credit Repair process was developed by experienced attorneys.

Speed. Documents are typically processed and sent out for investigation within 3-5 days.

Support. Award winning customer service guarantees your satisfaction.

CreditFirm.net Review

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