Credit scoring is a number generated by mathematical formulas which helps lenders determine if you are a good risk for credit. The most frequently used version of the credit score is the FICO score created by Fair Isaac Corporation. A FICO score is a snapshot of your credit risk picture at a particular point in time. The scores can range between 300 and 850. The higher your score, the lower the risk to lenders. Below are two charts that illustrate national information on FICO scores.

• A. FICO Delinquency Chart - The chart below is based on consumer's FICO scores and what their percentage of delinquency is on a credit card or loan payment. As you can see, FICO scores that are above 700 are considered very low credit risk. This means that for every 100 borrowers only 5 will be delinquent. FICO scores below 700 can be considered high credit risk and the delinquencies become greater as the FICO score gets lower.
  
• B. FICO Distribution Chart - The chart below is based on the percentage of consumers within a FICO scores range. As you can see over 1/3 of the U.S. population (40%) has a FICO score of 750 and higher.
  

Creditors, for years, have used a "FICO scoring" system. FICO Scores are calculated from a lot of different credit data and grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining your FICO score. Let's review:

Improving your credit score is like losing weight: It takes time and there is no quick fix. In fact, quick-fix efforts can backfire. The best advice is to manage credit responsibly over time. Here are some suggestions that could help improve your credit score:

• Pay your bills on time - Delinquent payments and collections can have a major negative impact on your score.
• If you have missed payments, get current and stay current - The longer you pay your bills on time, the more your score will increase.
• Pay down balances - By paying down your balances you are reducing your outstanding debt. Try to keep your balances within 50% of the credit limit. This could increase your score.
• Do not take on new debt - Taking on new debt means "inquiries" will appear on your credit report plus new debt. Both can decrease your score.

According to Fair Isaac Corporation, here are some examples of what can increase and decrease a FICO score:

• Increase FICO score:
  • If you can pay your bills on time for 6 months you could raise your FICO almost 20 points. If your FICO score is 650 it would now be 670.
  • Pay down the balances on your credit cards by 34% and you could raise your FICO score almost 20 points. If you owe $2,230 on a credit card, paying $750 (34%) alone could raise your score.
• Decrease your FICO score:
  • If you miss monthly payments by the due date on all of your credit card accounts your FICO score could decrease between 75 to 125 points. If your FICO score is 650 it will now lower to 575 to 525.
  • If you max out your credit cards to the limit your FICO score could decrease between 20 to 70 points. If your FICO score is 650 it will now lower to 630 to 580.

Lenders use a number of factors to make credit decisions including your FICO score. Lenders look at information such as the amount of debt you can reasonably handle given your income, your employment history, and your credit history. Based on their perception of this information, as well as their specific underwriting policies, lenders may extend credit to you although your score is low, or decline your request for credit although your score is high.

Just the opposite is true. A score is a "snapshot" of your risk at a particular point in time. It changes as new information is added to your bank and credit bureau files. Scores change gradually as you change the way you handle credit. For example, past credit problems impact your score less as time passes. Lenders request a current score when you submit a credit application so they have the most recent information available. Therefore, by taking the time to improve your score, you can qualify for more favorable interest rates.

Yes! Your credit report could have errors on it... therefore affecting your score. When a credit report contains errors, it is often because the report is incomplete, or contains information about someone else.

This typically happens because...

• The person applied for credit under different names (Robert Jones, Bob Jones, etc.).
• Someone made a clerical error in reading or entering name or address information from a hand-written application.
• The person gave an inaccurate social security number, or the number was misread by the lender.
• Loan or credit card payments were inadvertently applied to the wrong account.

Important Note: You should request a copy of your credit report from all three credit bureaus every six months to make sure the information in your credit report is correct especially before making a large purchase, like a house or car.