Q: I recently moved here from abroad and was turned down for a rental because I have no FICO score. What is a FICO score, and how do I improve it?
A: The FICO score was developed by Fair Isaac Corp. in 1989, and rates the credit worthiness of the applicant. Generally, a FICO score falls between 300 and 850. A score below 600 indicates a bad credit risk, while a score above 700 is considered good credit.
Until recently, FICO scores didn’t even appear on most rental credit reports. Instead, a list of the applicant’s credit activity was provided, which wasn’t easy for some landlords to read and evaluate. Now that FICO scores are reported to landlords, renters may be concerned they are being evaluated based on a single number.
Why does a FICO score matter? The score, calculated using a complex statistical model, is the grown-up version of a report card. The higher the grade, the better your credit risk looks to lenders. To have a low FICO score could indicate failure to make the grade as a credit risk. Among the reasons a person might have no score, said Fair Isaac spokesman Craig Watts, is that the person recently immigrated to this country and hasn’t yet established accounts with U.S. lenders.
Other consumer credit rating scores are also on the horizon. Using a different a mathematical model than the trademarked FICO score, VantageScore was introduced earlier this year using information from all three national credit-reporting companies. While lenders will rely on the numerical scores, the assigned grade scale helps consumers understand their scores more easily. The score, ranging from 600 to a possible 990, is scaled as follows:
Since credit scores are a snapshot of your credit history every time it is calculated, you can always improve the score — or set the score straight if there’s an error.
The first thing to do is get a copy of your credit report. If you were recently denied credit you are entitled to a free copy, upon request.
You may also request a report online or by phone, a right granted annually to consumers under federal law. Watch out, though, since the only truly free one is available at www.annualcreditreport.com, or (877) 322-8228. Other sites that advertise free reports often charge a fee after 30 days for subscribing to their credit monitoring service.
Your report lists specific information, including credit cards you have opened and closed, balance activity, and any loans.
Although the report through Annual Credit Report is free, it only provides lines of credit data. Obtaining the actual FICO score number will cost around $7.
Once you have your credit report in hand, you can get a handle on what others are seeing. Scan carefully for errors, especially checking that all account balances are accurate and that any negative items, such as late payments, are correct.
What makes up your FICO score? The actual number is determined by five credit aspects, with 35 percent attributed simply to paying bills on time. An additional 30 percent is based on the amount of outstanding debt, with consumers who have high balances paying the price with a lower score. Overuse of credit is measured by how much you can borrow and how much you’ve racked up as debt. Owing more than 70 percent of available credit is a red flag to lenders.
An additional 20 percent of the score is based on the number of new accounts opened or applied for recently, and the mix of credit types on the credit report. Length of credit history accounts for the last 15 percent.
Finally, how do you get your FICO score up to grade? By playing the credit game wisely.
If you have no credit established at all, large chain stores offer charge cards for shoppers, requiring little or no pre-existing credit. Pay bills on time, especially because penalty rates for new borrowers can be steep. When the credit offers come streaming in, don’t sign on for more debt.
By knowing what factors affect your score, you can get the numbers running in your favor, and before you know it, your credit will be in top-notch shape.
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