Legal Aid Facts

If you are in debt and concerned about paying it off, you’re probably aware that too much debt, late payments, or worse, missed payments, can negatively effect your credit score.

But what is a credit score? And how can you find out what yours is?

Fair Isaac Corporation was founded in the 1950s by an engineer named Bill Fair and a mathematician named Earl Isaac, to create a credit scoring system. They built their first credit scoring system in 1956.

As the years went on the Fair Isaac Corporation developed ever more sophisticated credit scoring systems and software to predict people’s credit-worthiness.

The more likely it is that someone will default on a loan, the higher their interest rates will be.

So now, when a lending institution is considering whether to give someone a loan, they generally go to one of three major credit reporting agencies to get that person’s credit score before deciding whether to give them a loan at all - and deciding what that interest  rate will be.

The three agencies are Equifax, Transunion, & Experian. Where does Fico come in? All of these agencies use FICO software information to determine your credit score, ranging from 300 to 850, with most Americans falling in the 600s to 700s. These days, with tightening credit standards, a credit score in the 700s is often necessary to get a mortgage loan, especially one with a good rate.

Here are the factors that FICO takes into account when calculating your credit score:

Payment history: 35 percent - Don’t pay late!
Amounts Owed: 30 Percent - Don’t borrow too much in proportion to your credit history!
Length of Credit History: Older credit cards with regular on-time payments help build good credit
New Credit: Number of recent accounts opened, number of recent credit inquiries - applying for a lot of loans at the same time hurts your credit
Types of Credit Used: Credit cards, retail store accounts, installment loans, mortgage loan, etc.

You can look at your credit report for free by going to www.annualcreditreport.com and requesting it. They are obligated to provide you with one free copy of your credit report every 12 months.  They are the only site authorized by the Federal Government to provide this service. The Federal Trade Commission recommends that you link to them directly from their site http://www.ftc.gov/freereports  to make sure that you are going to the official site.  To see your credit score - not your credit report - you must purchase it, from one of the three credit reporting agencies, Equifax, Experian, or Transunion.