Financial Education

FICO: What it means, how important it is, how to increase your score.

Your FICO^® score is one of the most important numbers you’ll ever have. A low score can keep you from getting approved for a loan or from being able to rent an apartment. And it’s likely you’ll pay higher loan rates and insurance premiums. A low credit score can even prevent you from being considered for a job.

When creditors look at your FICO^® score, they are generally trying to figure out your “creditworthiness,” or your ability to pay them back. The higher your score, the lower a risk you are and the lower the loan rates you’ll be able to get if you are approved for a loan.

Here’s a general guideline of how creditors rate you based on your credit score:

An online booklet called Understanding Your FICO^® Score can provide you with thorough details on what makes up your credit sore and how it can impact your life. We encourage all of our members to review this valuable resource to understand just how important a credit score is and how you can establish and protect it.

If you’ve already experienced some setbacks that have damaged your credit score, and you’re interested in rebuilding that score, call us or stop by one of our branches. We’ll work out a plan with you to get you back on track.

A record of your credit history.

There are a number of factors that go into your credit score, including:

• Your ability to pay back loans on a regular and timely basis (including credit cards)
• How close you are to maxing out all of your available credit lines
• How long you’ve had a credit history
• Your overall amount of outstanding credit
• Having a good mix of different types of credit (such as “closed-end” loans, like mortgages or car loans, and “open-end” loans, like credit cards)

Unfortunately, sometimes information that is not accurate can find its way to your credit report. Clerical errors, inaccurate reporting and identity theft are just a few ways this can happen. That’s why it is so important to check your credit reports regularly to make sure that all information is correct and that no one has tried to open credit accounts using your name.

One way to do that is to visit AnnualCreditReport.com. It’s a free way to order all three credit bureau reports at one time so that you can check them over for accuracy.

However, if you ever want to sign up with one or all of the three major credit reporting agencies, you can contact each to enroll (for a fee) in their monitoring programs:

Equifax: 800.685.1111 (general) or 800.525.6285 (fraud)
P.O. Box 740241, Atlanta, GA 30374
www.equifax.com

Experian: 888.397.3742 (general and fraud)
P.O. Box 2002, Allen, TX 75013
www.experian.com

TransUnion: 800.888.4213 (general) or (800.680.7289 (fraud)
P.O. Box 2000, Chester, PA 19022
www.transunion.com

All three offer different paid packages to safeguard your credit, so do some homework and find out which program works best for you.

Little steps go a long way.

There is a lot of information that is taken into consideration when calculating your credit score. Here’s how the factors are weighted:
Payment History – 35%
Amounts Owed – 30%
Length of Credit History – 15%
New Credit – 10%
Types of Credit Used – 10%

As you can see, the most important factor is making your loan and credit card payments on time. If you have had a problem in the past, the longer you pay your bills on time, the more your score will increase. The impact of older missed payments will have less weight on your score over time.

And although having a higher amount of credit versus total debt is also taken into account, don’t go out opening a bunch of new accounts. This could actually lower your credit score. Instead, if you have the means to do so, you’d be better off getting a car loan than you would by opening additional credit card accounts.

Also, once you have paid a credit card off, do not close the account right away. The length of time that you have had the account plays into a positive credit score.