Credit Coach Playbook #1: Understanding the “Game”

February 17  Category: Playbook

What is a credit report?
When you apply for credit, the lender reviews your credit report before approving your application. The three major credit reporting agencies are Equifax, Experian, and TransUnion. These agencies, which are also called “bureaus,” collect and report information about consumers’ financial habits and put the information into a credit report along with a rating, referred to as your FICO Score.  Each agency’s report contains the same basic information: name; Social Security number; current and previous addresses; current and previous employers; details about how you have your opened and closed accounts/ loans; public-record information, such as bankruptcies, court judgments, or liens; and a list of companies that have reviewed the credit report.

What is FICO Score?
The FICO Score is a scoring method developed by Fair Isaac And Corp, which determines a person’s credit worthiness. It is a computer model established to aid the three major credit bureaus: Equifax, Experian, and Trans Union.

How does it work?
The computer model compares your credit history in terms of the status and number of credit cards, balances owed, mortgage, installment loans, late payments, delinquencies and bankruptcies. It calculates your score depending upon your current credit status, and takes into consideration your past credit history. It collects data on the credit available to you; credit used by you, and timely repayment, and compares it with the other thousands of customers. Then, you are assigned credit scores in points. The break up of the calculation can be as follows –
35% — payment history
30% — amount of outstanding debt (in comparison to available revolving credit (credit limits)
15% — length of credit history
10% — types of credit used (installment, revolving, consumer finance)
10% — inquires and amount of new accounts opened or applied for

Points 
You can get a score ranging between 300 to 850 points. The higher the points, the better the FICO Score, which in turn gives you the financial advantage to succeed in our credit based society. Inversely, the lower the points, the lower the FICO score, which in turn can severely limit your financial options, resources, and growth.

Our Game Plan: Raise your score and WIN the “game”!