Managing Your Credit Report: Your FICO Score and Credit Rating

  • Credit Score, "Financial Education", Smart Financial Goals, FICO
  • April 16, 2020
  • FCU Team

If you have made any kind of big purchase as an adult, you know your credit matters. Whether you are buying a car, renting an apartment, buying a house, or even trying to land your dream job, someone is going to take a look at your credit report.

Have you ever taken a careful look at your credit report?

Even if the answer is yes, you might be confused by some of the terminologies. What's the difference between a credit score and a credit report? What is a FICO score? Who assigns all those numbers to you? And what if you haven't done your best to take care of that important number and now need to fix it up?

The truth is, the information on that report is important to you. It's also important for people and lenders who may want to loan you money or expect money from you. Your credit score will impact your ability to get a loan and the interest rate you will be charged.

Read more to learn all about the FICO score, credit score, and your credit report and why it matters for you.

What Is FICO?

FICO score is one term you often hear in relation to your credit and you might be wondering if your FICO score and credit score the same thing.

FICO is a data analytics company, once called the Fair, Isaac, and Company (FICO) that uses data about you to formulate the FICO score. This score is based on all the credit decisions you make (more on that later). While it is not the same as your credit score, one may drive the other..

FICO monitors and evaluates everything you do related to your credit decisions. They use this information in their analytics to formulate your FICO score.

Understanding Your FICO Score

Let's take a closer look at what makes up your FICO score and more information about how to understand that score.

Your FICO score is a number that ranges between 300 and 850. The higher your score the less credit risk you represent.

From a perfect credit score on down, here is the FICO score range:

  • Excellent 800–850
  • Very good 740–799
  • Good 670–739
  • Fair 580–669
  • Poor 300–579

Remember this is the FICO score scale, not the credit score scale. Although this breakdown may be very similar to the one used by the credit reporting agencies.

When you apply for new credit like an auto loan, a mortgage or even a new credit card, potential lenders will look at this number as a barometer for whether you are fit to be loaned money or given credit.

What Affects FICO and Your Credit Score

Your FICO score is created based on a number of factors. Each of these is used in FICO's analytics to create your individual FICO score.

  1. Your payment history makes up 35% of your FICO score. This number looks specifically at how you have paid your credit in the past. Do you pay on time? Do you pay late? Do you have accounts you have not paid for a period of time? It will also look at public records and information for things like bankruptcy.
  2. How much money you owe makes up 30% of your overall score. This part focuses on how much money you owe on credit cards and loans. It also factors in how much of the available credit you have is being used. This is called your credit utilization rate. Ideally, you only want to use about 30% of the credit you have available to you.
  3. The length of your credit history makes up 15% of your score. This part of the score considers how long you have had credit, your oldest and newest. It also considers how long you go without using specific accounts.
  4. The mix of credit you have makes up 10% of the score. This comes from the type of credit you have. Is it all from credit cards? Is part of your credit from a mortgage or car loan?
  5. 10% of your score comes from credit inquiries made on your credit and new accounts you open.

Opening too many new accounts or having too many inquiries can negatively impact your score. For this reason, you always want to be mindful when considering opening a new line of credit.

How to Get a Credit Report

Experian, Equifax, and TransUnion are required by the Fair Credit Reporting Act to provide you with a free credit report once a year. They will not automatically send it to you. But, upon request, they must provide you with a report once a year.

You can go online to www.annualcreditreport.com or call 1-877-322-8228 and request it.

You should know this credit report doesn't necessarily provide a credit score, but it does give an outline of the factors that make up your overall score.

Some experts recommend you request a report from all three agencies at the same time. Then you can compare the reports for accuracy. You want to quickly address any inaccuracies with the reporting agencies if you see them.

Under the Fair Credit Reporting Act, credit bureaus are required to investigate issues related to your credit report. You can fix a credit report or start a dispute through their online reporting site.

What Is On a Credit Report?

Your credit report holds significant information about your financial life. It is broken down into four categories: identity, existing credit information, public records, and recent inquiries.

Let's take a look at each of these categories:

Identity

This section provides your name, date of birth, social security number, current and previous addresses, phone numbers and employment background. Many people just skim this section, but it is important to make sure the information is accurate. You don't want to get stuck with someone else's credit information on your report because of a mixed-up identity.

Existing Credit Information

This section gives information about all of your credit accounts, things like a mortgage, student loans, car loans, personal loans, and credit cards. It will tell:

  • Co-signer information
  • Recent account balance
  • Highest account balance
  • Monthly payment
  • Recent payment

It also gives information about the loan balance or how much credit is available on the account. This will include information about closed accounts too.

Public Records

This would include any information related to your financial life that becomes part of the public record, like property purchases, liens, divorces, foreclosures, court judgments, and bankruptcies.

Chapter 13 bankruptcy stays on the credit report for 7 years, while a Chapter 7 bankruptcy stays on the report for 10 years.

Credit Inquiries

This shows any inquiries that have been made about your credit over the last two years and is referred to as a hard pull. Hard pulls can affect your overall credit score.

Companies can also do a soft pull to check if you are a good credit risk without actually pulling a full credit report. Soft pulls do not affect your overall credit score and would not show up as a credit inquiry. Now, if you open an account because of the soft pull inquiry, that will show up on the report.

Why the Number Matters

It's easy to see why the FICO score and credit score matter, as it is tied to so many decisions you make. Here are some of the groups who will look at your credit score for consideration:

  • Lenders and potential lenders who might be considering giving you a loan or a line of credit
  • Financial institutions when you open checking and savings accounts
  • Landlords and utility companies that want to determine if you will pay your bill on time
  • Insurance companies use credit information to establish their rates based on risk
  • Collection agencies use the information to see if they might get a debt repaid
  • Government agencies will look at your credit score to see if you are eligible for certain benefits

In recent years, employers and potential employers will also look at your credit report. It tells them information about your level of responsibility and reliability. However, an employer cannot check your credit report without your permission.

If a company or organization opts to not to extend services or credit to your, or not to hire you because of the information on the report they must provide you with an adverse action notice. This provides you with information about the reason you were denied and a report from the bureau who provided it to the organization.

Ways to Improve Your Credit Score

You're not alone if you have made mistakes with your credit. Many people make errors in judgment about their credit before they even realize its significance. While it's not good to have a low credit score, the good news is it can be repaired.

There are several things you can do to rebuild your financial health. As you do these things, naturally your credit score will improve.

Credit Reports

You already know how to get them and what information you can see on them. You should review your credit report annually.

What negatives are showing up on the report? This helps you to establish a focus on repairing your credit.

Paying Bills

Getting control of your finances and paying bills on time is huge in the credit game.

Make it a goal to always:

  • Pay your bills on time
  • Pay off debt, such as credit cards, as much as possible
  • Pay a higher amount than the minimum due

Make sure you get a budget in place and an organization system to manage bill paying.

Credit Utilization Rate

Work to pay down debt so you are only using 30% (or less) of your available credit. If you owe a lot this can seem daunting. Don't use the cards and keep paying on them. Eventually, those balances get smaller. And if you've paid on time, then your credit score improves.

Limit Requests for New Credit

Remember, whenever there is a hard-hit request on your credit, it impacts your score negatively. You want to avoid asking for more credit while you are trying to repair the credit you have.

Keep old accounts open and work to pay off any old debt. This will help to repair your credit too.

FICO Vs. Credit Score Vs. Credit Report

Credit companies are constantly gathering financial credit-related information about you, like FICO. They also use your FICO score to establish your credit rating.

There are 3 major credit reporting companies:  Experian, Equifax, and TransUnion.

These companies create your credit score. They also put together the credit report which shows a profile of the credit you have and make it available to anyone who needs financial information about you.

The Fair Credit Reporting Act (FCRA) is federal legislation that is in place to help regulate how these credit reporting agencies operate. The Federal Trade Commission is tasked with monitoring them since they handle sensitive, private and important information for anyone who gets or needs credit.

It's important to note that these credit agencies are separate from each other. While each will gather information and put on your credit report, they don't do this together or in unison. These credit agencies sell their services to banks, lending institutions and other credit-related agencies.

Understanding Your FICO Score and More

Understanding FICO score, credit score, and your credit report is the first step to good financial health.

If your credit score isn’t where you’d like it be, or you just want advice on how to add some extra points, call Florida Credit Union or visit your local branch. FCU offers free credit score reviews and counselling to all members.

Florida Credit Union is a full-service financial institution. Founded in 1954 as the Alachua County Teacher’s Credit Union, FCU now services over 100,000 consumer and business members in 45 countries throughout North and Central Florida. For more information about the services we provide, visit FLCU.org or call us at 1-800-284-1144.