Frequently Asked Questions about the FICO® Scores
A credit score is a number that summarizes your credit risk. The score is based on a snapshot of your credit file(s) at one of the three major consumer reporting agencies (CRAs)—Equifax, Experian and TransUnion—at a particular point in time, and helps lenders evaluate your credit risk. Your credit score influences the credit that’s available to you and the terms, such as interest rate, that lenders offer you.
The credit scores most widely used in lending decisions are FICO® Scores, the credit scores created by Fair Isaac Corporation (FICO). Lenders can request FICO® Scores from all three major consumer reporting agencies (CRAs). Lenders use FICO® Scores to help them make billions of credit decisions every year. FICO develops FICO® Scores based solely on information in consumer credit files maintained at the CRAs. Understanding your FICO® Scores can help you better understand your credit risk. A good FICO® Score means better financial options for you.
The score above which a lender would accept a new application for credit, but below which the credit application would be denied, is known as the “score cutoff”. Since the score cutoff varies by lender, it’s hard to say what a good FICO® Score is outside the context of a particular lending decision. For example, one auto lender may offer lower interest rates to people with FICO® Scores above, say, 680; another lender may use 720, and so on. Your lender may be able to give you guidance on their criteria for a given credit product.
The chart below provides a breakdown of ranges for FICO® Scores found across the U.S. consumer population. It provides general guidance on what a particular FICO® Score represents. Again, each lender has its own credit risk standards.
|Ranges of FICO® Scores||Rating||What FICO® Scores in this range mean|
|800 or higher||Exceptional||
|740 to 799||Very Good||
|670 to 739||Good||
|580 to 669||Fair||
|lower than 580||Poor||
No. While FICO® Scores are the most commonly used credit risk scores by lenders in the US, lenders may use other scores to evaluate your credit risk. These include:
- FICO Application risk scores. Many lenders use scoring systems that include a FICO® Score but also consider information from your credit application.
- FICO Customer risk scores. A lender may use these scores to make credit decisions on its current customers. Also called “behavior scores,” these scores generally consider a FICO® Score along with information on how you have paid that lender in the past.
- Other credit scores. These scores may evaluate your credit file(s) differently than FICO® Scores, and in some cases a higher score may mean more risk, not less risk as with FICO® Scores. FICO® Scores are the scores most lenders use when making credit decisions.
In general, when people talk about “your credit score,” they’re talking about your FICO® Scores. But in fact, your FICO® Scores are calculated separately by each of the three consumer reporting agencies (CRAs)—using a formula that FICO has developed. It’s normal for your FICO® Scores from each CRA to be different for any of the following reasons:
- Your FICO® Scores are based on the credit information in your credit file at a particular CRA at the time your score is calculated. The information in your credit files is supplied by lenders, collection agencies and court records. Some of these sources may provide your information to just one or two of the CRAs, not all three. Differences in the underlying credit data will often result in differences in your FICO® Scores.
You may have applied for credit under different names (for example, Robert Jones versus Bob Jones) or a maiden name, which may cause fragmented or incomplete files at the CRAs. In rare situations, this can result in your credit files not having certain account information, or including information that should be on someone else’s credit files. This is one reason why it is important for you to review your credit files at least annually.
- Lenders may report your credit information to one credit reporting agency today, and to another credit reporting agency tomorrow. This can result in one agency having more up-to-date information which in turn can cause differences in your FICO® Scores from both agencies.
- The CRAs may record the same information in slightly different ways which can affect your FICO® Scores.
There’s really not much to it; in order for a FICO® Score to be calculated, a credit file must contain these minimum requirements:
- At least one account that has been open for six months or more
- At least one account that has been reported to the credit reporting agency within the past six months
- No indication of deceased on the credit file (Please note: if you share an account with another person and the other account holder is reported deceased, it is important to check your credit file to make sure you are not impacted).
There are a few ways to establish a credit history, including the following.
- By applying for and open a new credit card, a person with no or little credit history may not get very good terms on this credit card—such as a high annual percentage rate (APR). However, by charging small amounts and paying off the balance each month, you won’t be paying interest each month so the high APR won’t hurt your financial position.
- Open a secured credit card. Those unable to get approved for a traditional credit card may be able to open a secured credit card to build credit history, provided the card issuer reports secured cards to the consumer reporting agency. This type of card requires a deposit of money with the credit card company. Charges can then be made on the secured card, typically up to the amount deposited.
With both traditional and secured credit cards, keeping balances low, paying off balances each month, and not missing payments are important for responsible financial health management.
Your FICO® Scores reflect credit payment patterns over time with more of an emphasis on recently reported information than older information. Below is some general information about shaping your financial future:
- The key score factors provided with your FICO® Score represent the main areas of credit practices that impact your financial health.
- Consumers with a moderate number of credit accounts on their credit report generally represent lower risk than consumers with either a large number or a very limited number of credit accounts. Opening accounts solely for a better credit picture probably won’t impact a FICO® Score and, in some instances, may even lower the score.
- People who continually pay their bills on time tend to appear less risky to lenders. Collections and delinquent payments, even if only a few days late, can have a major negative impact on your FICO® Scores.
- People who stay caught up on amounts due and continue to pay their bills on time are generally viewed as less risky to lenders. Especially after missing payments, getting back on track with paying bills on time will have an impact on your financial health. Older credit problems have less impact on your FICO® Score than recent ones, so poor credit performance won’t haunt you forever. The impact of past credit problems on your FICO® Scores fades as time passes and as recent good payment patterns show up on a credit file. And your FICO® Scores weigh any credit problems against any positive information that indicates that you’re responsibly managing your financial health.
- Creditors and legitimate credit counselors may be able to provide direction to people who are having trouble responsibly managing their financial health. Seeking assistance from a credit counseling service will not hurt FICO® Scores.
- High outstanding credit card debt can negatively impact your FICO® Scores.
- Paying down total revolving (credit card) debt, rather than moving it from one credit card to another, is a responsible financial health management practice.
- Most public records and collections stay on a person’s credit report for no more than seven years—though bankruptcies may remain for up to 10 years. However, as these items age, their impact on a FICO® Score gradually decreases, and people can re-establish a good credit history with ongoing responsible financial health management.
- People who show moderate and conscientious use of revolving accounts, such as having low balances and paying them on time, generally demonstrate responsible financial behavior. Having credit cards and installment loans (and making timely payments) will positively impact financial health. People with no credit cards, for example, tend to be higher risk than people who have managed credit cards responsibly.
- Typically, the presence of “inquiries” the number of requests from a lender for your credit reports when you apply for loanson a credit report has only a small impact, carrying much less importance than late payments, the amount owed, and length of time a person has used credit. FICO® Scores consider recent inquiries less as time passes, provided no new inquiries are added. Too many “inquiries can negatively affect a FICO® Score. However, FICO® Scores treat multiple inquiries from auto, mortgage, or student loan lenders within a short period of time as a single inquiry because when purchasing a house or a car it is customary to shop for the best rate, resulting in more inquiries.
- Closing unused credit cards as a short-term strategy to increase a FICO® Score can actually have the opposite effect and lower a FICO® Score.
- For people who have been using credit for only a short time, opening a lot of new accounts too quickly can lower a FICO® Score.
It depends on the type of negative information. Here’s the basic breakdown of how long different types of negative information will remain on your credit files:
- Late payments: 7 years
- Bankruptcies: 7 years for a completed Chapter 13, and 10 years for Chapters 7 and 11
- Foreclosures: 7 years
- Collections: Generally, about 7 years, depending on the age of the debt being collected
- Public Record: Generally 7 years, although unpaid tax liens can remain indefinitely
It’s important to note that your FICO® Scores are calculated each time they’re requested; either by you or a lender. And each time a FICO®® Score is calculated, it’s taking into consideration the information that is in your credit file at a particular consumer reporting agency at that time. So, as the information in your credit file changes, your FICO® Scores can also change.
How much your FICO® Scores change from time to time is driven by a variety of factors such as:
- Your current credit profile—how you have managed your financial health to date will affect how a particular action may impact your scores. For example, new information in your credit file, such as opening a new credit account, is more likely to have a larger impact for someone with a limited credit history as compared to someone with a very full credit history.
- The change being reported—the “degree” of change being reported will have an impact. For example, if someone who usually pays bills on-time continues to do so (a positive action) then there will likely be only a small impact on his or her FICO® Scores one month later. On the other hand, if this same person files for bankruptcy or misses a payment, then there will most likely be a substantial impact on their score one month later.
- How quickly information is updated—there is sometimes a lag between when you perform an action (like paying off your credit card balance in full) and when it is reported by the creditor to the consumer reporting agencies. It’s only when the consumer reporting agency has the updated information that your action will have an effect on your FICO® Scores.
Yes, but not in the way you might expect. And, while closing an account may be a good strategy for responsible financial health management in some cases, it also may have a negative impact on your FICO® Scores.
FICO® Scores take into consideration something called a “credit utilization ratio”. This ratio or proportion basically looks at your total used credit in relation to your total available credit; the higher this ratio is, the more it can negatively affect your FICO® Scores. This is because, in general, people with higher credit utilization ratios are more likely to default on loans. So, by closing an old or unused card, you are essentially wiping away some of your available credit and thereby increasing your credit utilization ratio.
It’s a bit tricky, so here’s an example:
Say you have three credit cards.
- Credit card 1 has a $500 balance and a $2,000 credit limit.
- Credit card 2 is an unused card with a zero balance and a $3,000 limit.
- Credit card 3 has a $1,500 balance and a $1,500 limit.
In this scenario your credit utilization ratio looks like this:
Total balances = $2,000 ($500 + $0 + $1,500)
Total available credit = $6,500 ($2,000 + $3,000 + $1,500)
Credit utilization ratio = 30% (2,000 divided by 6,500)
Now, if you decide to close credit card 2 because it’s an old card that you never use, your credit utilization ratio looks like this:
Total balances = $2,000 ($500 + $1,500)
Total available credit = $3,500 ($2,000 + $1,500)
Credit utilization ratio = 57% (2,000 divided by 3,500)
You can see that your utilization ratio rose from 30% to 57% by closing the unused credit card.
There are a number of different things to consider when managing credit card debt. We’ll touch on a few of the key things of which to be aware.
The advantage of having more than one credit card
People who only have one credit card available and are coming close to maxing out that card, might consider applying for another card in terms of how it affects their FICO® Scores. It has to do with what’s called credit utilization.
Utilization measures how much of your credit you are using in relation to your total available credit. If you have one credit card with $500 charged to it and a credit limit of $1,000, then your utilization is 50%. There’s no ideal utilization to shoot for, because as with most things, it depends on everything else on your file. But in terms of the risk of hurting FICO® Scores, people who keep their utilization on any one card below 50% will see less negative impact to their FICO® Scores. Research has shown that people who max out a single credit card are more likely to miss future payments, and therefore FICO® Scores consider people using more of their available credit as more risky than people who are using very little of their available credit.
Disadvantages of having a large number of credit cards
Consumers with a moderate number of revolving accounts on their credit report generally represent lower risk than consumers with either a relatively large number or a very limited number of revolving accounts.
The common alternatives to foreclosure, such as short sales, and deeds-in-lieu of foreclosure, are all “not paid as agreed” accounts, and considered the same by FICO® Scores. This is not to say that these may not be better options in some situations; it’s just that they will be considered no better or worse than a foreclosure by FICO® Scores.
Bankruptcies as an alternative to foreclosure may have a greater impact on a FICO® Score. While a foreclosure is a single account that you default on, declaring bankruptcy has the opportunity to affect multiple accounts and therefore has potential to have a greater negative impact on your FICO® Scores.
Simply contacting your servicer with questions has no effect on your FICO® Scores. If your servicer needs to check your credit, they must get your permission first. A credit check could result in an inquiry in your credit file, which can have a small impact on your scores.
Any action after that may also impact your FICO® Scores—for example, if you pursue refinancing or loan modifications.
Refinancing and loan modifications can affect your FICO® Scores in a few areas. How much these affect the score depends on whether it’s reported to the consumer reporting agencies as the same loan with changes or as an entirely new loan.If a refinanced loan or modified loan is reported as the same loan with changes, three pieces of information associated with the loan modification may affect your score: the credit inquiry, changes to the loan balance, and changes to the terms of that loan. Overall, the impact of these changes on your FICO® Scores should be minimal.
If a refinanced loan or modified loan is reported as a “new” loan, your score could still be affected by the inquiry, balance, and terms of the loan—along with the additional impact of a new “open date.” A new or recent open date typically indicates that it is a new credit obligation and, as a result, can impact the score more than if the terms of the existing loan are simply changed.
FICO® Scores consider late payments in these general areas; how recent the late payments are, how severe the late payments are, and how frequently the late payments occur. So this means that a recent late payment could be more damaging to a FICO® Score than a number of late payments that happened a long time ago.
You may have noticed on your credit reports that late payments are listed by how late the payments are. Typically, creditors report late payments in one of these categories: 30-days late, 60-days late, 90-days late, 120-days late, 150-days late, or charge off (written off as a loss because of severe delinquency). Of course a 90-day late is worse than a 30-day late, but the important thing to understand is that people who continually pay their bills on time tend to appear less risky to lenders. However, for people who continue not to pay debt, and their creditor either charges it off or sends it to a collection agency, it is considered a significant event with regard to a score and will likely have a severe negative impact.
A history of payments is the largest factor in FICO® Scores. Sometimes circumstances cause people to be unable to keep current with their bills—maybe an unexpected medical emergency or losing a job. Creditors and legitimate credit counselors may be able to provide direction to people when they are having trouble responsibly managing their financial health. Late payments hurt scores and credit standing, but paying off late debt and getting current before the debt becomes a judgment or goes to a collections agency will have a positive effect on a score. However, you can never again get an account to a “current” status once it becomes a judgment or is turned over to a collection agency.
A bankruptcy is considered a very negative event by FICO® Scores. How much of an impact it will have on your score will depend on your entire credit profile. For example, someone that had spotless credit and a very high FICO® Score could expect a huge drop in their score. On the other hand, someone with many negative items already listed in their credit files might only see a modest drop in their score; that’s because their lower score is already reflective of their higher risk level. Another thing to note is that the more accounts included in the bankruptcy filing, the more of an impact on a FICO® Score.
While it may take up to ten years for a bankruptcy to fall off of your file, the impact of the bankruptcy will lessen over time.
If you file for bankruptcy, here are some things you should do to make sure your creditors are accurately reporting the bankruptcy filing:
- Check your credit files to ensure that accounts that were not part of the bankruptcy filing are not being reported with a bankruptcy status.
- Make sure your bankruptcy is removed as soon as it is eligible to be “purged” from your credit file.
While there are many things to consider when filing for bankruptcy, understand that the bankruptcy will impact your FICO® Scores for as long as it is listed on your credit files.
A bankruptcy is considered a very negative event by FICO® Scores regardless of the type. As long as the bankruptcy is listed on your credit file, it will be factored into your scores. However, as the bankruptcy item ages, its impact on a FICO® Score gradually decreases. Typically, here is how long you can expect bankruptcies to remain on your credit files (from the date filed):
- Chapter 11 and 7 bankruptcies up to 10 years.
- Completed Chapter 13 bankruptcies up to 7 years.
These dates and time periods refer to the public record item associated with filing for bankruptcy. All of the individual accounts included in the bankruptcy should be removed from your credit files after 7 years.
Public records and your FICO® Score
Public records are legal documents created and maintained by Federal and local governments, which are usually accessible to the public. Some public records, such as divorces, are not considered by FICO® Scores, but adverse public records, which include bankruptcies, judgments and tax liens, are considered by FICO® Scores. FICO® Scores can be affected by the mere presence of an adverse public record, whether paid or not.
Adverse public records will have less effect on a FICO® Score as time passes, but they can remain in your credit files for up to ten years based on what type of public record it is. Judgments specifically remain in your credit files for seven years from the date filed.
A judgment in your credit file
Judgments will almost always have a negative effect. Creditors, collections agencies, and legitimate credit counselors may be able to provide direction, or negotiate a payment plan, to people when they are having trouble responsibly managing their financial health, and before a debt turns into a judgment.
Credit missteps – how their effects on the FICO® Score vary
People can run into financial difficulties that impact their FICO® Scores. Some difficulties may change your score by a small amount, while others can drop your score significantly. What your score was before the difficulty appeared in your credit files also can make a difference.
Here is a comparison of the impact that credit problems can have on FICO® Scores of two different people: Alex and Benecia. Note that their initial FICO® Scores are 100 points apart.
First, let’s give you a general snapshot of Alex’s and Benecia’s credit profiles:
|Alex has a FICO® Score of 680 and:||Benecia has a FICO® Score of 780 and:|
|Has six credit accounts, including several active credit cards, an active auto loan, a mortgage, and a student loan||Has ten credit accounts, including several active credit cards, an active auto loan, a mortgage and a student loan|
|An eight-year credit history||A fifteen-year credit history|
|Moderate utilization on his credit card accounts (his balances are 40-50% of his limits)||Low utilization on her credit card accounts (her balances are 15-25% of her limits)|
|Two reported delinquencies: a 90-day delinquency two years ago on a credit card account, and an isolated 30-day delinquency on his auto loan a year ago||Never has missed a payment on any credit obligation|
|Has no accounts in collections and no adverse public records on file||Has no accounts in collections and no adverse public records on file|
Now let’s take a look at how different credit missteps impact their FICO® Score:
|Current FICO® Score||680||780|
|Score after one of these credit missteps is added to each credit file:|
|Maxing out (charging up to the limit) a credit card||650-670||735-755|
|A 30-day delinquency||600-620||670-690|
|Settling a credit card debt for less than owed||615-635||655-675|
As you can see, maxing out (charging up to the limit) a credit card has the smallest impact of these credit missteps. Declaring bankruptcy has the biggest impact to their scores. For someone like Benecia with a high FICO® Score of 780, declaring bankruptcy could lower her score by as much as 240 points. That’s because FICO® Scores generally give the most weight to payment history. Bankruptcy is included in one’s payment history. Also, a bankruptcy often involves more than one credit account, compared with a foreclosure which often involves just a single account.
High scores can fall farther. Notice that Benecia would lose more points for each misstep than would Alex, even though her FICO® Score starts out 100 points higher. That’s because Alex’s lower score of 680 already reflects his riskier past behavior. So the addition of one more indicator of increased risk on his credit file is not quite as significant to his score as it is for Benecia.
Settling a credit card debt is the third credit problem listed. It means that the lender agrees to accept less than the amount owed on the account. A settled account indicates a higher level of risk and typically happens only when an account is overdue. So in Benecia’s case, to help make the debt settlement plausible we also added a 30-day delinquency to her credit file. Her new FICO® Score reflects both changes. Alex’s credit file already included a recent delinquency.
Are you more like Alex or Benecia? Many different combinations of information in a credit file can produce a FICO® Score of 680 or 780. Depending on what’s on your own credit files, your experience may vary from that of Alex or Benecia, or be similar. In any case, if a person knows what’s in their credit reports at each of the three major consumer reporting agencies, he or she may be able to better understand the severity of impact of a financial misstep to their score.
Credit inquiries are requests by a “legitimate business” to check your credit.
Inquiries may or may not affect FICO® Scores. Credit inquiries are classified as either “hard inquiries” or “soft inquiries”—only hard inquiries have an effect on FICO® Scores.
Soft inquiries are all credit inquiries where your credit is NOT being reviewed by a prospective lender. FICO® Scores do not take into account any involuntary (soft) inquiries made by businesses with which you did not apply for credit, inquiries from employers, or your own requests to see your credit file. Soft inquiries also include inquiries from businesses checking your credit to offer you goods or services (such as promotional offers by credit card companies) and credit checks from businesses with which you already have a credit account. If you are receiving FICO® Scores for free from a business with which you already have a credit account, there is no additional inquiry made on your credit report.
FICO® Scores take into account only voluntary (hard) inquiries that result from your application for credit. Hard inquiries include credit checks when you’ve applied for an auto loan, mortgage, credit card or other types of loans. Each of these types of credit checks count as a single inquiry. One exception occurs when you are “rate shopping”. Your FICO® Scores consider all inquiries within a reasonable shopping period for an auto, student loan or mortgage as a single inquiry.
The relative information with a hard inquiry that can be factored into FICO® Scores include:
- 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(ies).
For many people, one additional hard credit inquiry (voluntary and initiated by an application for credit) may not affect their FICO® Scores at all. For others, one additional inquiry would take less than 5 points off a FICO® Score.
Inquiries can have a greater impact, however, if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk: people with six inquiries or more in their credit files are eight times more likely to declare bankruptcy than people with no inquiries in their files.
The short answer is yes—applying for many new accounts often hurts your FICO® Scores more than applying for a single new account. There is no magic number of applications to which you should limit yourself. However, FICO® Scores consider recent inquiries less as time passes, provided no new inquiries are added.
Applying for a single new credit card may have a small impact to a FICO® Score, but if you apply for several credit cards, that can have a much greater effect on your FICO® Scores. Generally, rate shopping for home or auto loans will have less of an impact on your FICO® Scores than comparison shopping for credit cards or other types of credit accounts. A better practice when determining the best credit card is to read about the features of each card and then only apply for the one that has the features you want from your new card.
Applying for new credit only accounts for about 10% of a FICO® Score, so the impact is relatively modest. Exactly how much applying for new credit affects your score depends on your overall credit profile and what else is already in your credit reports. For example, applying for new credit can have a greater impact on your FICO® Scores if you only have a few accounts or a short credit history. That said, there are definitely a few things to be aware of depending on the type of credit you are applying for. When you apply for credit, a credit check or “inquiry” can be requested to check your credit standing. Let’s take a look at the common inquiries you might find in your credit reports.
If you only need a small amount, credit card companies will sometimes provide an increased credit limit (for accounts already opened). While a request for an increased limit may count as an inquiry just like opening a new card would, it won’t reduce the average age of your credit accounts, which is also important to your FICO® Scores.
If getting the limit raised on an existing card isn’t an option, then applying for the fewest number of credit cards will have the least negative impact to your FICO® Scores. For example, if a person needed an extra $5,000, getting one card with a $5,000 limit rather than two cards each with a $2,500 limit results in less impact to your scores. That’s because when applying for new credit cards, each application is counted separately as an individual inquiry in your credit file, and the more inquiries you have, the more that could hurt your FICO® Scores. Historically, people with six inquiries or more in their credit files are eight times more likely to declare bankruptcy than people with no inquiries in their files. So having more inquiries makes you look more risky to potential lenders.
Home, Auto, and Student Loans
FICO® Scores do not penalize people for rate shopping for a home, car or student loan. During rate shopping, multiple lenders may request your credit reports to check your credit. But FICO® Scores de-duplicate these and consider inquiries within a reasonable shopping period for an auto, student loan or mortgage each as a single inquiry. Doing the entire rate shopping and getting the loan within 45 days, will have no immediate impact to your FICO® Score. Given rate shopping for home, auto and student loans has no immediate impact, why do you even see an inquiry in your credit files? While these types of inquiries may appear in your files, FICO® Scores count all those inquiries that fall in a typical shopping period as just one inquiry. So, again, doing rate shopping within a matter of weeks as opposed to a matter of months limits the longer-term impact to your scores as well.
While putting more money towards savings is usually a good idea, it’s not necessarily going to impact your FICO® Scores. FICO® Scores do not consider the amount of disposable cash (savings accounts, certificates of deposit or cash in your cookie jar) you have at any given time. Therefore, the amount of money you keep in savings doesn’t impact your FICO® Scores.
As far as spending less, that could have an effect on your FICO® Scores. For example, if you typically use your credit cards for purchases and you don’t always pay off the balance on those credit cards, then you may notice an impact in your FICO® Scores. FICO® Scores factor in the balance on revolving credit accounts (for example, credit cards).
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