Many adults become aware of their FICO score when applying for a home mortgage or other loan. They may learn that their score is 690 or 740 or 770. But what does it really mean?
As KFC used to be Kentucky Fried Chicken, FICO is a firm once known as Fair Isaac Company. It specializes in analyzing data to create a financial grade for each potential borrower. The score is used to help Wisconsin community banks and other lenders predict how likely it is that a consumer will pay his or her bills on time and be able to handle a certain mortgage amount or credit line. The score is also a factor in the interest and terms of your loan.
To create a score ranging from a low of 300 to a high of 850, FICO uses information provided by the three major reporting agencies: Equifax, Experian, and TransUnion. When creating a score, FICO considers the following factors (see picture above):
- Payment history-Have you paid your bills on time? If not, how late were you, and how often were you late? (This factor contributes 35 percent of your score.)
- Amounts owed-on each account and how much of your credit limit have you used (Contributes 30 percent of your score.)
- Length of Credit history-How long have you had each account? (Contributes 15 percent of your score.)
- New credit-How many new accounts or queries have you had? (Contributes 10 percent of your score.)
- Credit Mix-What types of debt do you have? (Contributes 10 percent of your score.)
What does your score mean?
- 800 or higher: Flawless (13 percent of the population have this score.)
- 750 – 799: Excellent (27 percent)
- 700 – 749: Good (18 percent)
- 650 – 699: Mediocre (15 percent)
- 600 – 650: Not good (12 percent)
- 550 – 599: Poor (8 percent)
- 500 – 549: Terrible (5 percent)
- 499 and below: Worst (2 percent)
By now, you may be wondering how to find your FICO score. While you can find your scores based on information from the three major reporting agencies online at www.myfico.com, these are not free. In addition, they may not be the precise scores used by your lender.
A better value is to request a free credit report from the three major reporting agencies online at www.annualcreditreport.com or by toll-free phone at 877-322-8228. Keep in mind the factors that FICO considers when reviewing your credit reports to get a handle on your approximate score. Also be sure to check these reports annually and inform the agencies if you spot any errors or inaccuracies.
To learn more about your financial health, visit the Wisconsin Department of Financial Institutions’ Financial Wellness Checklist Center at www.wdfi.org/ymm/wellness_checklist.htm.