Credit Score Basics

By: State Bank & Trust (Member FDIC)

You may have heard that your credit score is important, but what is a FICO score? FICO is short for Fair, Isaac and Company. The Fair Isaac Company developed custom software back in the 1980s that helped other companies determine a credit risk based on a number derived from a person’s credit history. This number soon became a standard that was adopted by the 3 main credit bureaus: Equifax, Experian and TransUnion. The FICO score ranges between 300 and 850.

Credit Score vs. Credit Report

A credit score and a credit report are 2 different things, although the credit score ultimately depends on your credit report. Your credit report is simply a detailed account of your credit history. The report will contain information such as:

  • Current credit accounts
  • Payment history
  • Credit inquiries
  • Credit utilization
  • Bankruptcy

A FICO credit score is based off of your credit history, but it’s not actually a part of your credit report. Instead, the 3 major credit bureaus will calculate your FICO based on your credit history they have on file. This means you can have up to 3 different FICO scores at one time. Your FICO score does not come with your credit report and it isn’t something you’re entitled to annually. You may have to pay a fee to actually receive your score.

What Makes Up a Credit Score

A credit score takes into account a lot of different information from your credit report, but it’s not all treated equally. Some aspects of your credit history are more important than others and will weigh more heavily on your overall score. Your FICO score is essentially made up of the following:

  • Payment History – 35%
  • Total Amounts Owed – 30%
  • Length of Credit History – 15%
  • New Credit – 10%
  • Type of Credit in Use – 10%

Why Your FICO Credit Score is Important

Your credit score will follow you for as long as you live. Not only does your credit score determine whether or not you’ll receive a loan, it also determines how much it will cost you to borrow that money. People with higher credit scores are deemed to be less of a risk and therefore will typically receive the lowest interest rates. Those with lower scores are viewed as more of a risk so you may receive a higher interest rate.

How to Receive a Free Credit Report

The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies to provide you with a free copy of your credit report, at your request, once every 12 months.

Here are some common questions about getting free credit reports:

Q. How do I order my free report?
A. There is one central website, toll-free telephone number and mailing address for all three companies. Do not call the companies directly. To request a report, do one of the following:

Q. What information do I have to provide to get my free report?
You will need to provide your name, address, Social Security number and date of birth. If you have moved in the last two years, you may have to provide your previous address. You may also be asked for information only you would know for security purposes.

Q. How long does it take to get my report after I order it?
A. If you request the report online, you should be able to access it immediately. If you order the report by phone or mail, it should be mailed to you within 15 days.

Q. Should I order a report from each of the three nationwide consumer reporting companies at the same time?
You can, but some financial advisors say staggering your requests during a 12-month period may be a good way to keep any eye on the accuracy and completeness of the information in your reports. Note that information from each company may not be the same, because their sources may be different.

Q. What if I find errors or inaccuracies on my credit report?
Under the FCRA, both the consumer reporting company and the information provider are responsible for correcting the information. Contact the company in writing with your corrections.

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