Introduction to the Credit Score Issue

credit-score-informationFor many of our clients, after receiving relief from their monthly payments and/or reducing their total debt by at least 50%, the issue of their credit score is usually of great concern. Because of the various ramifications of future interest rates & payments and possibly insurance rates, many want to know what happens to their score, how best to protect it, and how best to improve it.

We at Integrity Debt Solutions-Texas have much experience in this area because we have dealt with consumers of all backgrounds. Obviously, there are many situations where a person can live without a good/decent credit score with no problems. And the fact is most people can get by just fine without good credit – especially if they only need future financing for a home or car (which can almost always be obtained).

However, on the other side of the coin, many need their credit score to be at a certain level. This research paper will discuss the many facets surrounding this issue and we close with real life cases & testimonials from clients.

The Basics of Your FICO…
Please allow me to give a brief overview of the basics regarding credit scores. You’re FICO score is nothing more than a reference to a score that was developed using the Fair Isaac credit scoring model by one of the three major credit reporting agencies (Equifax, Trans Union, Experian). The FICO model calculates scores based on information in five dimensions.

1. Payment History (35% of FICO score) – account payment information with such agencies as credit cards, lenders of installment loans, mortgages and retailers. This part of your credit score measures your ability to pay on time and the money you have past due.

2. Amounts Owed (30% of FICO score) – information concerning the total amount of credit you have outstanding, number of accounts, balances on account and how much credit you have relative to the maximum creditors are willing to extend to you

3. Length of Credit History (15% of FICO score) – this dimension measures how long your accounts have been open with creditors and lenders. The longer your credit history, the easier it is to accurately identify payment patterns.

4. New Credit (10% of FICO score) – this information is used to calculate your credit score and reflects how much credit you’ve applied for lately. For example, how many times you’ve applied for credit in the last 1-2 months.

5. Types of Credit (10% of FICO score) – this is the diversity of credit you have in your portfolio. For example, do you have a mortgage, car loan and credit cards? The more types of credit you have, the more accurately your score can be determined.

If you’re looking for a FICO score calculator, you may be disappointed to learn that you won’t find a calculator that provides you with a numerical value – and that’s probably what you’re looking for. Fair Isaac uses a complex and proprietary algorithm / calculation to develop their score and the only way to obtain the score is by purchasing it directly from Experian, Equifax, or Trans Union.

For the same reasons that you won’t find a calculator, it’s also not possible to find free FICO scores online either. Anyone claiming to offer you a free FICO score is misleading you or will provide you with an inaccurate number. Legitimate offers of FICO credit scores should run you around $15.00, and that is for just one of the three credit reporting agencies.

In fact, a bundle of credit scores from all three credit agencies can run from $25-$45. Also, you can pay for the ability to monitor your score on a monthly basis and that will run you around $7-$15 per month – perhaps a good value, but not exactly a free score.

Figuring out if your FICO score is good, bad, or average is not as simple as it sounds. For argument’s sake, we can define a good FICO score as any score that is above the national average score of 678. The same rational can be used to define a bad FICO score as any score below the average FICO score.

But an average credit score varies considerably by state – the average score in Texas is 649. Also, an average can sometimes be misleading because it doesn’t tell you anything about the “distribution” of FICO scores. The FICO score chart below gives you a distribution of the national scores.


Table of FICO Credit Scores

% of Population Credit Score
2% 300 – 499
5% 500 – 549
8% 550 – 599
12% 600 – 649
15% 650 – 699
18% 700 – 749
27% 750 – 799
13% 800 – 850

What this table helps you to understand is the percentage of the national population with credit scores in the ranges indicated. So from this table you know that 27% of the population has a credit score between 750 and 799. And you also know that 58% of the population has a credit score above 700 (18% + 27% + 13% = 58%).

Check back tomorrow for the second article in our credit score series!

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