Tag Archives: credit score facts
Another 10 facts about credit scores, credit reporting, and debt.
That’s because your credit score impacts so much in your life these days, from rent and homeownership to credit card approvals, interest rates on student and auto loans to even employment. But too often, we’re still in the dark when it comes to credit scores, credit reporting, and general financial knowledge about debt management.
As the nation’s leader in credit repair solutions, Nationwide Credit Clearing is committed to helping educate you about these important topics. This is part three of our ongoing series as we count up to 50 things you didn’t know about credit score, credit reporting, and debt.
Look for part one and part two here and contact us if you have any questions or credit issues at all!
1. A survey by the Consumer Federation of America (CFA) discovered that the majority of consumers (just over 50%) had no clue that their credit scores can be checked and monitored by anyone other than credit bureaus. Only 53% of respondents knew that electric utilities checked credit scores and only 68% knew that home insurers, cell phone companies, and landlords regularly do the same.
2. However, even you may be shocked to hear that 90% of home and auto insurance companies check credit scores to help determine your coverage options and also what premiums you’ll pay.
3. A 2016 survey conducted by VantageScore found that only 32% of Americans (less than one-third) had received a copy of their free credit report within the last year, and 16% hadn’t even received a free report within the last three years.
4. Not to pick on college students, but they still have a lot to learn – about their classroom subjects as well as about credit scoring. In fact, a study by Equifax found that only 45% of college kids have any idea what their credit score is! It seems the majority of college students check their credit when applying for a credit card (41%), a new debit card or bank loan (33%) compared to only 4% who request and receive a paid copy.
5. Not only is credit score a crucial factor when you want to apply for a new loan or a mortgage, but employers are screening their potential employees for credit score like never before. It’s estimated that 1 in 4 unemployed Americans have been subjected to a credit score check when they applied for a job, and 1 in 10 has been denied a job because of a bad score or something on their credit report!
6. Adding to the credit score confusion, 45% of respondents think that age is a factor in credit scoring, and 38% believe marital status plays into their credit score. (Do they believe single or married people get a score bump?)
7. On the other end of the spectrum, about 26 million people – or 14% of the adult U.S. population – has no credit score at all, called “credit invisible.” Some of them are immigrants who haven’t had the chance to establish credit lines in the U.S., while others are from low-income or unstable environments and never have taken out a credit card or loan.
8. We all know the Big Four credit card companies now (Visa, MasterCard, Discover, and Amex), but the first ever credit card that allowed a member to purchase anything they’d like and then pay it back over time was called BankAmericard. Issued in 1958, they changed their name to the more-familiar “Visa” in 1977.
In 1966, the Interbank Card Association bought the rights to “Master Charge” from the California Bank Association, which they renamed “MasterCard” in 1979.
9. Americans may be buying new cars, homes, and fancy electronics, but how are we paying for everything? Too often, the answer is with debt. In fact, 52% of Americans spend more money than they earn every single month, and 21% have regular monthly bills that are more than their take-home pay! 1 in 4 Americans have more debt than savings, and the average American spends $1.33 for every dollar they earn.
10. The American Bankers Association found that 44% of Americans surveyed thought that credit scores and credit reports were the exact same thing! That’s probably why a study by the National Foundation for Credit Counseling (NFCC) revealed that a significant portion of consumers thought that they didn’t need to know their credit score because they already had a copy of their credit report.
Online fraud is one of the fastest growing forms of crime, reaching epidemic proportions in a nexus of technology and cruel anonymity that defies international borders. The highest instance of fraud attempts is now aimed at businesses, violating their often-weak or nonexistent firewalls to access customer financial data, and using it with impunity.
10 More things you didn’t know about credit scores, credit reporting, and debt in America
Your credit score impacts so much in your life these days, from rent and homeownership to credit card approvals, interest rates on student and auto loans to even employment. But too often, we’re still in the dark when it comes to credit scores, credit reporting, and general financial knowledge about debt management.
As the nation’s leader in credit repair solutions, Nationwide Credit Clearing is committed to help educate you about these important topics. This is part two of our ongoing series, 50 things you didn’t know about credit score, credit reporting, and debt. Look for part one here, and contact us if you have any questions or credit issues at all!
1. Which company earns the title as the most popular credit card in the rest of the world? That honor belongs to both Mastercard, which has 551 million cards issued throughout the world as well as 180 million cards here in the United States. However, Visa wins top-dog honors on home soil, with 278 million cards floating around the U.S., as well as 522 in the rest of the world.
2. It’s no surprise that people often turn to their credit cards to pay bills and living expenses once they are unemployed, In fact, 86 percent of low and middle-income households who have a working member that is now unemployed turn to credit cards to fill the gaps monthly.
3. Likewise, almost 50 percent of low and middle-income households now are carrying credit card debt that comes from out of pocket payments they have to make on medical bills and expenses.
4. It’s interesting to look at a map and compute the average credit score for each state (OK, I don’t get out much!). In fact, the states with the lowest average credit scores are in the south and southwest, including New Mexico, Texas, Oklahoma, Arkansas, Louisiana, Mississippi, Tennessee, Georgia, Alabama, South Carolina, Nevada, and Florida. In those states, an alarming 40 percent of the population have subprime credit scores!
5. However, the states with the highest average credit scores are found in the north and midwest. Minnesota and North Dakota are the states with the highest average credit scores, with 707 and 700 average FICOs, respectively.
6. Aside from the state you live in, there are some other puzzling correlations between the heights of your credit score and your seemingly unrelated behaviors. For example, one study found a direct correlation between credit scores and which email provider the participants used! They found that Comcast email user (692 average) and Gmail, (682) have above average scores, but MSN (669), Aol (668) and Yahoo! (652) email users have below average scores.
7. But more common-sense correlations also apply. For instance, there are significant differences in credit scores based on age. Baby Boomers and the Silent Generation (68-85 years old) have average scores of 700 and up, while Gen Xers average a 655 score, Millennials average a 634 score, and Gen Z is lagging with a 631 average Vantage Score.
8. One correlation that we could have easily predicted is that between scores and homeownership, In fact, a Federal Reserve study found that the average credit score among homebuyers and homeowners is 728 – significantly higher than the national average. Additionally, they found that only 6.8% of homebuyers or homeowners had scores below 620 in the study.
9. We hear about our credit scores impacting home ownership, credit cards, interest rates on other loans, renting, and even employment. But did you know that your credit score can make a big difference on…your dating life? It’s true! According to a 2016 Bankrate survey, almost 4 in 10 U.S. adults say that they’d rather date someone with a good or excellent credit score, but they’d be wary of dating a sup-prime suitor. In fact, 43% of women and 32% of men said that a person’s credit would have an impact on if they dated them.
10. Americans are still pretty mixed up, confused, and turned around when it comes to basic knowledge of credit scores and credit reporting. In fact, studies have shown that of an average sample Americans, 47% didn’t know that credit scores are used by non-creditors like electric utilities and home insurers, 68% didn’t know that cell phone companies use credit scores, and 32% had no idea that landlords could check their credit!
Do you have questions about your credit or looking to improve your score? Contact Nationwide Credit Clearing for a FREE credit report and consultation at (773) 862-7700 or mynationwidecredit.com!
50 things you didn’t know about credit scores, credit reporting, and debt. (Part 1)
2. People often talk about their “credit score” as if they had just one. In fact, there are more than 100 credit scoring models used by banks, lenders, and financial institutions.
3. But FICO is the biggest and most recognizable credit scoring model. FICO is an acronym for the “Fair Isaac Corporation” and is based on the risk-predicting algorithms developed by mathematician Earl Isaac and engineer Bill Fair in 1956, and then rolled out in the 1980s as a credit scoring system.
4. Did you know that these days, credit scores are even influencing people’s dating decisions? It’s true, as surveys show that the majority of people would consider someone’s credit score before dating them or getting in a relationship. There’s even an online dating site called CreditScoreDating.com with the motto, “Credit Scores are Sexy!”
5. Millennials – and especially college kids – are really missing the boat when it comes to keeping good credit scores. In fact, Millennials have the lowest Vantage credit scores of any generation, including Gen X (ages 30-46), Baby Boomers (47-65), and the Greatest Generation (66+).
6. Speaking to that point, surveys show that 85% of U.S. college students don’t even know their own credit score!
7. These days, your credit score impacts far more than just buying a house or getting a good rate on your credit card, as many employers now check the credit reports of their potential applicants. In fact, 1 in 4 Americans looking for a job have been subjected to a credit check, and 1 in 10 has been disqualified from getting hired because of something on their credit report!
8. According to reports by the Department of Labor, occupations that routinely check a job applicant’a credit include: 1) parking booth operator, 2) the military, 3) accounting, 4) mortgage loan originator, 5) Transportation Security Administrator (TSA), 6) law enforcement and 7) temporary service positions and many more.
9. FICO scores are based on a complex (and secretive_ algorithm that factors every nuance of credit behavior from tens of millions of consumers. Their programs then look for patterns that will help them predict future defaults (or on-time payments) for borrowers, which they then translate as a numeric spectrum of risk for lenders, or your credit score.
10. These days, an estimated 33% (one out of every three) of all American adults do not pay their bills on time every month!
11. How much bad credit card debt do the big banks take a loss on every year? Last year, the top 100 banks in the U.S. had an average charge-off rate of 3.87%, which means that nearly 4 out of every 100 people don’t pay,
12. Last year, the average Annual Percentage Rate (APR) for all U.S. credit cards was 13.14% – another great reason to build up your credit score and get out of debt this year!
13. About 19 countries around the world use some form of FICO scores, and many more have their own credit scoring system.
14. Nearly two-thirds of U.S. adults – or 144 million people – haven’t even looked at their credit report within the last 365 days.
15. And one-third of working-age Americans don’t even have a clue what their credit score is!
16. Visa is by far the biggest credit card in the U.S., with 278 million cards at home (that’s about one for every adult in our population!). Mastercard is next with 180 million cards
But while Visa has 522 million cards across the globe, MasterCard just beats them out with 551 million cards abroad.
17. Visa is also the largest credit card in the U.S. by sales volume, with $981 billion in annual charges. MasterCard is second with about $534 billion in yearly debt from cardmembers.
18. The average U.S. consumer has 13 credit accounts listed on their credit report, which includes 9 credit cards and 4 installment loans. (But remember, that doesn’t mean they’re all open and active, just reporting.)
19. In the 1990s, America saw an explosion of personal debt levels that was unprecedented. One of the main causes was the fact that banks, lenders, and financial institutions starting using credit scores en masse to help them gauge risk and make faster, more accurate decisions.
20. In fact, in 1995, the nation’s two largest mortgage financing agencies, Fannie Mae and Freddie Mac, started advising lenders to use FICO scores for their borrowers, allowing the floodgates on lending to tens of millions of Americans.
21. But at first, FICO didn’t want to reveal how they calculated a consumers credit score, opting to keep it a secret. But under intense pressure from financial advocates and governmental influence, in 2003 they released a list of 22 factors that go into their credit scoring model. That same year, the U.S. Congress passed a new law that granted consumers the right to access their credit score.
22. Remember that credit scoring systems weren’t designed to help consumers and the general public, but lenders and companies. Therefore, credit scoring models, reports, and computations weren’t supposed to be easy for the average person to understand!
23. Insurance companies are using credit scores and reporting like never before. In fact, insurance actuarials prove that the lower a customer’s credit score, the more likely they are to file an insurance claim – costing their insurer money.
24. These days, 90% of homeowners and auto insurance companies use credit score as a factor when assigning and rating premiums! Therefore, insurance companies reward customers with good credit scores, and your premiums will be much lower than for those with a low credit score.
25. If you want to improve your credit score (and keep it high), then try to only keep credit cards from well-respected, major banks, like VISA, Mastercard, American Express, etc.). They’ll show that you’re a better steward of your finances and a more responsible debt holder than if you open accounts with lesser known finance companies, retail cards, etc., and your credit score will reflect that.
Look for part 2 of this blog, with 25 more things you didn’t know about credit scores, credit reporting, and debt!
The 5 Factors That Go Into Your FICO Score
Your FICO® score is a major factor when it comes to getting approved for a loan or new credit. In fact, the Fair Isaac Corporation (FICO) is used by 90% of top lenders and banks around the country to help gauge whether you’re a good candidate for new credit, as well as the interest rate they’ll offer. In total, it’s estimated that FICO scores are used for up to 10 billion decisions about credit around the world each year!
However, FICO has closely guarded their credit scoring algorithms, so we don’t know exactly how their computations will raise or lower our scores. But the good news is that FICO does publicize the specific factors that play into a credit score.
“FICO scores give the most attention to how you have paid back lenders in the past,” says FICO spokesman Craig Watts, “and how much you are using of the credit available to you, as shown on your credit report. Those two factors contribute roughly two-thirds of a typical person’s FICO score.”
Let’s take a closer look at those five factors that go into your FICO score:
35 % of your total FICO credit score.
The single most important factor that influences your FICO score is your record of replaying past debts. This makes perfect sense, considering that past behavior of paying off debts on time and in full is the biggest predictor of future repayment.
When it comes to your payment history, FICO looks at both revolving loans, such as your credit cards, and installment loans, like mortgages or student loans. In fact, we do know that your FICO score will drop more if you miss a payment on a large installment loan, like your home mortgage, over a smaller credit card, for instance.
To achieve a great credit score:
The single best way to improve your FICO or keep it high is to make all of your payments on time every single month.
30 % of your total credit score.
Almost as prevalent as payment history is your credit utilization, or the percentage of available credit compared to what you already owe. Creditors are wary to lend more to consumers who consistently max out their revolving accounts and consistently spend up to their limit without a buffer. Their research shows that these folks are more likely to miss payments or default in the future f they’re already constantly spending every dollar they have available as credit.
To achieve a great credit score:
Common advice is to keep all of your credit cards and revolving debt at around 30% of the total available credit. However, FICO’s research shows that borrowers with the highest credit scores tend to have a credit utilization ratio around 7 percent or so.
Length of Credit History
15 % of your total credit score.
All accounts aren’t created equal when it comes to credit scoring, with the accounts that have been open the longest helping your score more than recently opened ones. This factors into your length of credit history, as well-seasoned accounts are a better indicator of a consumer’s responsible payment pattern. Therefore, even if they’ve never missed a payment or done anything wrong, a borrower with only new tradelines on the credit report will never have a perfect score.
To achieve a great credit score:
Make sure to keep older accounts in good standing and think twice about paying off and closing any well-seasoned accounts (including with balance transfers), as it may hurt your score.
10 % of your total credit score.
About 1/1oth of your FICO score is determined by what kinds of new credit you’re adding – and applying for. When consumers start applying for credit cards and other credit too often within a short period of time, it indicates financial desperation or risky spending patterns, and their score may drop accordingly. The exception is when borrowers are applying for a big purchase like a mortgage or auto loan, as it’s expected that they’ll “shop around” a little.
To achieve a great credit score:
Don’t apply for new credit frivolously, and mind the quality of the new tradeline, too. Just because every retail store, department store, and credit card mailer is offering you more credit, you probably don’t want to take it.
10 % of your total credit score.
To show a healthy mix of credit and financial acumen, FICO looks for a mix of different credit accounts, including credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. If a consumer has all credit cards, for instance, it may indicate a risky imbalance, and their score would be dinged accordingly. FICO’s data has shown that if a borrower has a good mix of credit, they have a higher chance of paying on time in the future.
To achieve a great credit score:
Take a look at the type of credit accounts on your report and balance it out with an installment loan, paying off an unneeded credit card, etc.
We now know the five factors that go into your FICO score, and what best practices to follow to keep a great credit score. However, your situation could be a little different based on what’s on your credit report and your credit history, so you should get help from a credit professional to maximize your score.
If you’d like help with your FICO score, contact us for a free consultation today!