education

1. What is a credit score?

2. How can I find out my credit score?

3. How can I get a free copy of my credit report?

4. How long will negative items be reported in my credit file?

5. Is there anything that cannot be in my credit report?

6. I always pay my bills on time so I must have a good credit score, right?

1.) what is a FICO Score?

FICO Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining your FICO score.

These percentages are based on the importance of the five categories for the general population. For particular groups - for example, people who have not been using credit long - the importance of these categories may be somewhat different.

Payment History

• Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)

• Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)

• Severity of delinquency (how long past due)

• Amount past due on delinquent accounts or collection items

• Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)

• Number of past due items on file

• Number of accounts paid as agreed

Amounts Owed

• Amount owing on accounts

• Amount owing on specific types of accounts

• Lack of a specific type of balance, in some cases

• Number of accounts with balances

• Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)

• Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

Length of Credit History

• Time since accounts opened

• Time since accounts opened, by specific type of account

• Time since account activity

New Credit

• Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account

• Number of recent credit inquiries

• Time since recent account opening(s), by type of account

• Time since credit inquiry(s)

• Re-establishment of positive credit history following past payment problems

Types of Credit Used

• Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

Please note that:

• A FICO score takes into consideration all these categories of information, not just one or two.
  No one piece of information or factor alone will determine your score.

• The importance of any factor depends on the overall information in your credit report.
  For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your FICO score. Thus, it's impossible to say exactly how important any single factor is in determining your score - even the levels of importance shown here are for the general population, and will be different for different credit profiles. What's important is the mix of information, which varies from person to person, and for any one person over time.

• Your FICO score only looks at information in your credit report.
  However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.

• Your score considers both positive and negative information in your credit report.
  Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your FICO credit score.

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2.) how can I find out my credit score?

OptimFic has partnered with Credit.com to offer credit reports, credit monitoring, and credit score options for our clients. Requests for one’s own credit report is considered a personal or "soft" inquiry and will not have a negative impact your credit score.

Other web based credit report companies may provide you a credit score but it is likely not a FICO score. There can be significant differences between a FICO score compared to a Vantage, NextGen or Plus score which, currently, can be better described as educational in nature. Since most lenders use the FICO model to make lending decisions it may be more beneficial to utilize a service that provides the FICO score.

Click here if you would like to access your own credit report.

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3.) how can I get a free copy of my credit report?

By law, all consumers are entitled to a free copy of their credit report from each of the three credit bureaus once a year. Visit www.annualcreditreport.com to get yours for FREE. (This is for the credit report only and does not include the credit score.) For a nominal fee, you can pull a report and get your FICO score as described above.

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4.) how long will negative items be reported in my credit file?

• Delinquencies (30–180 days): Can remain seven years from the date of the initial missed payment.

• Collection accounts: Remain seven years from the date of the initial missed payment that led to the collection (the original delinquency date). When a collection account is paid in full, it will be marked "paid collection" on the credit report.

• Charged-off accounts: Remain seven years from the date of the initial missed payment that led to the charge-off (the original delinquency date), even if payments are later made on the charged-off account.

• Closed accounts: Closed accounts are accounts that are no longer available for further use. Closed accounts may or may not have a zero balance. Closed accounts with delinquencies remain seven years from the date they are reported closed, whether closed by the creditor or by the consumer, but the delinquency notation will be removed seven years after the delinquency occurred when pertaining to late payments. Positive closed accounts remain ten years from the closing date.

• Lost credit card: If there are no delinquencies, credit cards that are reported lost will continue to be listed for two years from the date the card is reported lost. Delinquent payments that occurred before the card was lost are reported for seven years.

• Bankruptcy: Chapters 7, 11, and 12 remain for ten years from the filing date. Chapter 13 remains seven years from the filing date. Accounts included in bankruptcy will remain seven years from the date they were reported as included in the bankruptcy.

• Judgments: Remain seven years from the date the judgment is filed.

• City, county, state, and federal tax liens: Unpaid tax liens remain fifteen years from the filing date. Paid tax liens remain seven years from the paid date of the lien.

• Inquiries: Most inquiries listed on your credit report will remain for two years. All inquiries must remain for a minimum of one year from the date the inquiry was made. Some inquiries, such as employment or pre-approved offers of credit, will show only on a personal credit report pulled by you.

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5.) is there anything that cannot be in my credit report?

Certain information cannot be in a credit report, including:

• Medical information (unless you give your consent).

• Notice of bankruptcy (Chapter 11) that is more than ten years old.

• Debts (including delinquent child support payments) that are more than seven years old.

• Your race, color, religion, national origin, sex and marital status. US law prohibits credit scoring from considering these facts, as well as any receipt of public assistance, or the exercise of any consumer right under the Consumer Credit Protection Act.

• Your age. Other types of scores may consider your age, but FICO  scores don’t.

• Your salary, occupation, title, employer, date employed or employment history. Lenders may consider this information, however.

• Where you live.

•  Any interest rate being charged on a particular credit card or other account.

• Any items reported as child/family support obligations or rental agreements.

• Certain types of inquiries (requests for your credit report or score). Your FICO score does not count any inquiries you initiate, any inquiries from employers, or any inquiries lenders make without your knowledge.

• Any information not found in your credit report.

• Any information that is not proven to be predictive of future credit performance.

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6.) I always pay my bills on time so I must have a good credit score, right?

Most consumers have the mindset that making payments on time automatically equates to good credit and credit scores.

Unfortunately, this couldn't be further from the truth.

While paying your bills on time accounts for a large portion of your credit score, there's still a lot more to it. In fact, paying your bills on time only drives 1/3rd of the points in your credit score, which means that 2/3rds of your score has nothing to do with making on time payments.

Previously, we discussed the five main categories go into making up your overall credit score calculation. Let's briefly review each category and how much they count:

1. Payment History - The Most Important Category: This category is pretty self-explanatory. It doesn't take a rocket scientist to figure out that if you pay your bills on time, you'll do well in this category. Likewise, if you have a history of late payments, collections, chargeoff’s, public records, etc. - you're not going to do so well in this category.

In addition, the number of negative items on your credit reports is important. The more incidents of credit transgressions, the more your score will suffer. And if you have recent negative information that will punish your scores more than if they are several years old.

2. Debt - A Very Close Second: The most important non-payment category in your credit score is, by far, the amount of debt that you carry. And while your installment debt (auto loans and mortgages) are factored into your scores, it's really your credit card debt that's most important. This includes anything from Visa, MasterCard, Discover, American Express, gas cards and/or retail credit cards like Macy's or Target. The balances that you carry on your credit cards can affect your scores almost as much as whether or not you make your payments on time.

This category calculates the proportion of balances to credit limits on your revolving credit card accounts - also referred to as 'revolving utilization'. Simply put, the higher your revolving utilization percentage, the fewer points you will earn in this category.

So what is revolving utilization and how is it calculated?

To determine your revolving utilization, you'll need to add up all of your current balances and all of your current credit limits on your open revolving credit accounts (except for Home Equity Lines of Credit). This will give you a total balance and a total credit limit. Divide the total balances by the total credit limit and then multiply that number by 100. This will give you your total revolving utilization percentage.

See the example provided below:

Remember, the lower your utilization percentage, the more points you'll earn and the higher your credit score will be. To earn the most possible points in this category, you should try to keep your revolving utilization at 10% or less. If you can't reach 10%, just remember that the lower the better. While 50% is better than 60%, 40% is better than 50% and so on.

How you pay your bills and your revolving utilization are by far the most important factors used to determine your credit scores. They account for 2/3rd of the points in your score. That's a hefty chunk! Needless to say, if you don't do well in both of these categories, your scores aren't going to be very good regardless of how you do in the remaining categories.

While the remaining categories are worth fewer points, they are still very important for consumers who want to earn the highest scores possible, certainly a requirement in today's difficult credit environment.

3. The Age of Your Credit History - Secondary Category: Don't confuse this with your age. It's the age of your credit reports. Basically, the score is looking to see if you have a lengthy history of managing your credit obligations. The age of your credit history is determined by the "date opened" on the oldest account listed on your credit report. The older your credit report, the more points you will earn in this category.

There's really not much you can do in this category except wait it out. As your reports get older, you will gradually earn more points. This means that you should never try and get old, good accounts removed from your credit reports. You want the history!

4. New Credit/Inquiries - Secondary Category: When you apply for credit you are giving the lender permission to pull your credit reports and credit scores. Each time this happens, your credit report will reflect what's called an "inquiry." To perform well in this category, you should really only apply for credit when you need it.

5. Credit Mix - Secondary Category: What types of accounts do you have? You will do well in this category if you have a nice diverse list of different types of accounts in your credit report. This includes mortgages, auto loans, installment loans, credit cards, etc.

If your credit report is dominated by one type of account (or lack of others), this could negatively affect the number of points that you earn from this category.

That pretty much covers the factors that are used in determining your credit scores. Let's do a quick recap:

1. How you pay your bills - on time is good, late is bad
2. How much you owe your creditors - keep your credit card debt low (10% utilization is optimal)
3. How long you've had credit - the longer the better
4. How often you apply for credit - apply only when you really need it
5. Account mix - diversity is good

If you can stick by these five key principles, you should be well on your way to healthy credit and credit scores.

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