Understand FICO Credit Scores for Equifax and TransUnion

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Your FICO credit score is the accumulation of all your credit data on your credit report. The most common credit score is known as FICO.  This credit score can be very important when apply for new lines of credit (credit cards, mortgages, and auto loans). In general, a score of at least a FICO credit score of 700 will be decent enough to apply for most credit cards that offer good reward programs.

 

Why do you need to understand your FICO Credit Score Range?

Premium reward credit cards (often with annual fees and much better rewards) will require slightly higher FICO credit scores. Your score contains both positive and negative aspects of your credit report such as if you always pay on time or if you have late payments. In sum, many factors are in the FICO credit score.

 

Applying for Credit Cards and FICO Credit Score

When you apply for credit – such as a credit card, auto loan or mortgage – the company from which you are seeking credit checks your credit report from one or more of the three major consumer reporting agencies. In addition to your credit report, they will most likely use a credit score such as the FICO® Score in their evaluation of risk before lending their money to you. There is more than one type of credit score, but the score used 90% of the time in lending decisions is the FICO credit score.

 

What is the difference between Experian, Equifax and Transunion?

There are three different credit reporting bureaus in the United States, Experian, Equifax and Transunion. All of these credit reporting bureaus calculate credit scores different and use the FICO factors.  Depending on your place of residence along with the credit card company when you apply for a credit card, different card companies will place different hard inquiries on one of the credit bureaus (Experian, Equifax and Transunion). Always check your credit score for discrepancies and report any errors to Experian, Equifax and Transunion. Some credit card companies will place credit inquiries on all 3 bureaus such as Capital One. Some lenders are conservative, meaning they only want to lend to the least risky consumers. These companies will be cautious and look closely at a FICO score.

Other lenders are happy to work with consumers who have less-than-ideal credit histories. It is important to read about the type of card you are applying for before submitting an application to make sure your credit score is adequate for approval. Based on this information, a lender will decide whether to approve or decline your credit application. If they approve it, they will set your credit terms, such as interest rate, credit limit and down payment requirement.

 

When do credit cards pull from Experian, Equifax and Transunion?

BankCardBureauScore Type
AmExPlatinum, PRG, SPGExperianFICO 8
BarclaysAviator, SallieMae, Arrial+TransUnionFICO
Capital OneQickSilverTransUnionFAKO VantageScore 3.0
CitiAA Platinum, Dividend, DoubleCashEquifaxFICO 08 Enhanced Bankcard
Credit.comN/AExperianFAKO
Credit KarmaN/ATransUnion + EquifaxFAKO
Credit SesameN/ATransUnionFAKO
ChaseSlateExperian
DiscoverITTransUnionFICO
First National Bank of OmahaFirstBank CardExperianFICO Bankcard 8
Mint.comN/AEquifaxFAKO
PenfedEquifaxFICO 08 Enhanced Bankcard
QuizzleN/AEquifaxFAKO VantageScore 3.0
USAAN/AExperianFAKO
TD BankN/ATransUnion

 

What are the factors in a FICO credit score?

Every U.S. consumer typically has three reports – one at each of the three major U.S. consumer reporting agencies (Equifax, TransUnion, and Experian). Often, lenders report details of your credit history to more than one consumer reporting agency. These specific details of your credit history affect your FICO score, which in turn, affect how likely you are to receive credit (or new credit cards)

Your FICO Credit Score takes into consideration five main categories of information in a credit report. The chart below shows the relative importance of each category to your FICO Credit Score. Below is a break down of factors in your FICO credit score:

 

Payment History and FICO Score

Approximately 35% of your FICO Score is based on this information, which includes: Payment information on many types of accounts: o Credit cards – such as Visa, MasterCard, American Express and Discover. Retail accounts – credit from stores where you do business, such as department store credit cards. Installment loans – loans where you make regular payment amounts, such as car loans and mortgage loans.

Payment history is pretty self-explanatory, this how often you pay on time. If you have several late payments of even things like medical bills in collection, this will hurt your score a lot. It is essential to pay all credit cards on time to increase your credit score.credit-cards26-lg

Amount Owed and FICO Score (Credit Utilization)

Approximately 30% of your FICO Credit Score is based on information which evaluates your indebtedness. In this category, your FICO Score takes into account:

  • The amount owed on all accounts.
  • The amount owed on different types of accounts.
  • Whether you are showing a balance on certain types of accounts.
  • The number of accounts where you carry a balance.
  • How much of the total credit line is being used on credit cards and other revolving credit accounts.
  • How much is still owed on installment loan accounts, compared with the original loan amounts.

This is also known as your credit utilization amount or otherwise known as your credit utilization ratio or how much of your credit line you use. There are many different theories on what a good credit utilization amount is. General guideline suggest that it is a good idea to never go over 30% of your credit limit, both on a single card, as well as across all your credit cards. This is why “maxing out your credit cards” can be detrimental to your overall FICO credit score. You will be seen as a much higher risk borrower.

Applying for many credit cards could actually raise your credit score because their utilization ratio will decrease. In the same manner, closing credits cards can hurt your credit score because you lose a credit line and then might have higher credit utilization. Before you apply for new credit cards, you should pay off large balances to reduce your utilization ratio, and then wait for the statements to close so the lower credit utilization is reported to the credit bureaus. Paying balances off will have no immediate effect as they haven’t had time to be reported as paid off. By having a lower credit utilization, you may increase your chances of getting a new credit card as you are seen as a more trustworthy borrower.

Remember, that having credit accounts with an outstanding balance does not necessarily mean you are a high-risk borrower with a low FICO Score. A long history of demonstrating consistent payments on credit accounts is a good way to show lenders you can responsibly manage additional credit.

 

Length of Credit History (Average Age of Accounts) and FICO Score

Approximately 15% of your FICO Score is based on this information. In general, a longer credit history will increase your FICO Score, all else being equal. However, even people who have not been using credit long can get a good FICO Credit Score, depending on what their credit report says about their payment history and amounts owed

Your oldest and newest cred cards will all be averaged together for purposes of credit score age. Too young of an average credit history will hurt their score. Closed credit accounts stay on your report for 10 years and will continue to age, which is the reason closing cards do not immediately impact your FICO score as even young cards will continue to age and bring up your average age of credit. It is recommended to keep as many no annual fee cards as possible just to lengthen/soften the blow when you open new cards with 0 months of history.

 

New Credit and FICO Score

Approximately 10% of your FICO Score is based on this information. FICO’s research shows that opening several credit accounts in a short period of time represents greater risk – especially for people who do not have a long credit history.

Basically, this is the amount that Hard credit pulls/hard credit inquiries you have on  your FICO score. Hard credit inquiries lessen after 3 months, stop factoring into your score after 1 year and completely fall off your report within 2 years. Too many hard inquiries will make it much harder for someone to apply for new credit cards. This is why if you are applying for an auto loan/mortage etc. in the future, it is recommended to avoid applying for many new credit cards. While your credit score is impacted by the number of inquiries, bank also count how many new accounts you have opened. Chase is now rejecting application to certain cards if you have opened more than 5 credit cards over the past two years. So while inquiries are important, banks do look at other factors.

 

 Types of Credit and FICO

imagesApproximately 10% of your FICO Score is based on this information. Your FICO Score considers your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open a credit account you don’t intend to use. The more different types of credit you have, the better. Though this is not to say you should open up an auto loan when you don’t need one. It’s only a small part of your score and other scores make a much bigger difference.

 

Authorized Users and FICO Scores

Another note is the use of authorized users. An authorized user on a credit card is when you are added as secondary user to someone else’s credit card account. Adding an authorized user may improve your credit score if the person who issued you the card has a good credit history and FICO

Be warned that any damage to the person who issued you the card will ALSO damage your score. If you’re trying to help a family member build credit, you can make them an Authorized User on your card, but under no circumstances should they make you an Authorized User on their card. Also any debt that is accumulated is still your responsibility, so only make Authorized User people whom you trust.

 

FICO Credit Score and Likelihood of Getting Credit Card

Your credit score is only one way of calculating if you will get a credit card. There are so many other factors that banks are using these days to issue credit cards. Other factors that may factor into a credit card application include your rent payment and income. Credit card company computers are designed to take your income and subtract your rent/mortgage payment and then use your score as a basis for how trustworthy you are. An income of 20-25k is sufficient enough to get even premium cards such as the Chase Sapphire Preferred, but as your credit limit grows higher when compared to your income it will be progressively harder to get more cards as well as if you have too many inquiries. This can be mitigated by asking the bank to split credit lines (4k each on 2 cards, vs. 8k on 1 card) but may not work in all circumstances.

 

Sites to Estimate FICO Score

There are several websites that perform an estimate of your credit score. These can be seen as alternatives and give you a general look of what your credit score should do in different circumstnaces. They usually are a little higher than what your credit score actually is.

These sites are considered safe and do not use your credit score other than to show you affiliate offers for credit cards on their homepage. CreditKarma shows the most information, while the others show less, namely just the score and not any detailed information.

 

What else is in your Credit Report?

The credit records at a credit bureau regarding a given individual. The file may include: the person’s name, address, Social Security Number, credit history, inquiries, collection records, and public records such as bankruptcy filings and tax liens.

 

All credit reports contain basically the same types of information:

  • Your basic personal Information Your name, address, Social Security number, date of birth and employment information. This does not factor into score and is used to indentify you.
  • Most lenders report information about each account you have established with them. They report the type of account, the date you opened the account, your credit limit or loan amount, the account balance, and your payment history.
  • Requests for Credit When you apply for a loan, you authorize your lender to ask for a copy of your credit report. This is how inquiries appear on your report. Your credit report lists inquiries that lenders have made for your credit report within the last two years.
  • Public Record and Collection Items Consumer reporting agencies also collect information on overdue debt from collection agencies and public record information such as bankruptcies, foreclosures, tax liens, garnishment, legal suits and judgments from state and county courthouses. In general, these items remain on your credit report for 7 to 10 years.

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