When you apply for credit-such as a credit card, auto loan, or mortgage-the company from which you are seeking credit checks your credit report from one or more of the three major consumer reporting agencies. In addition to your credit report(s), they will most likely use a credit score, such as a FICO Score, in their evaluation of risk before lending their money to you.
When evaluating your credit risk, the items that lenders generally pay the most attention to are:
- Your FICO Score
- Your payment history – to see if you have paid your bills on time
- Your current debt – to see if you are able to reasonably take on more debt
- Whether you have had any collections accounts
- Any public records, such as bankruptcies, judgments, and liens
- The types of financing you have successfully managed
- The length of your credit history
- Recent activity, including new accounts and credit inquiries by other lenders
- Your income – to determine your ability to make required payments
Based on this information, a lender will decide whether to approve or decline your credit application. If they approve it, they will set your credit terms, such as interest rate, credit limit, and down payment requirement.
Overview of FICO Scores
FICO Scores are used by thousands of creditors including the largest lenders, making it the most widely used credit score. Experts estimate that FICO Scores are used in over 90% of U.S. lending decisions1.
That includes whether to approve your credit application, what credit terms to offer you, and whether to increase your credit limit once your credit account is established.
In addition, lenders may consider other factors when making credit decisions. This can include:
- Information you provided on your credit application
- Your income
- Your regular expenses
- How you manage your credit, checking, and savings accounts
FICO Scores can be used in other arenas as well. Your FICO Score may be used when you apply for a cell phone account, cable TV, and utility services, for example.
How FICO Scores Work
FICO’s research shows that people with a high FICO Score tend to:
- Make all payments on time each month
- Keep credit card balances low
- Apply for new credit only when needed
- Establish a long credit history
FICO Scores take into consideration five main categories of information in a credit report:
Payment history
(35%)
Outstanding debt
(30%)
Length of
credit history (15%)
Pursuit of
new credit (10%)
Credit mix
(10%)
Tracking Your FICO Score is Important
FICO Scores are based on the information in the credit reports at one point in time and can change whenever the credit report changes. But a FICO Score probably won’t change much from one month to the next. However, certain events such as bankruptcy or late payments can lower a FICO Score fast. That’s why it’s a good idea to check your FICO Scores 6 to 12 months before applying for a big loan, so you can know your FICO Scores and better understand how FICO Scores work. For consumers who are actively working to improve their understanding of FICO Scores, checking your scores quarterly, or even monthly, is appropriate.
Check Your Credit
As a Signal Financial member, you have the ability to check your credit score monthly and receive personalized recommendations on how to improve your scores via Credit Score Dashboard in our online banking and mobile app.
Frequently Asked Questions
What are FICO Scores?
FICO Scores are numbers that summarize your credit risk. Scores are based on a snapshot of your credit file at particular consumer reporting agencies at a particular point in time, and help lenders evaluate your credit risk. FICO Scores influence the credit that’s available to you and the terms, such as interest rate, that lenders offer you.
How are FICO Scores calculated?
FICO Scores are calculated from many different pieces of credit data in your credit report. This data is grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining how FICO Scores are calculated.
- Payment history (35%)
- Outstanding debt (30%)
- Length of credit history (15%)
- Pursuit of new credit (10%)
- Credit mix (10%)
How can I receive my FICO Score from Signal?
Signal credit cardholders will receive their FICO Score updated on a quarterly basis, when available.
Will receiving my FICO Score impact my credit?
No. The FICO Score we provide to you will not impact your credit.
Why is my FICO Score not available?
- You are a new account holder and your FICO Score is not yet available
- Your credit history is too new
- You are not the primary account holder
- You have a business account – this benefit is available only to personal consumer accounts
- Your account does not currently offer this benefit – this benefit is available to credit card accounts only
- Your account is closed or has been inactive for more than 180 days
Whose FICO Score will appear on the account/statement?
The primary account holder for the credit card. Signal cannot supply scores for any other signers at this time.
Where does the information used to calculate my FICO Score come from?
FICO Scores are based on the credit information in a credit file with a particular consumer reporting agency (CRA) at the time the score is calculated. The information in your credit files is supplied by lenders, collection agencies, and court records. Not all lenders report to all three major CRAs. The FICO Score that we provide to you is based on data from your Experian report as of the ‘pulled on date’ shown with your score.
What are Key Score Factors?
When a lender receives a FICO Score, “key score factors” are also delivered, which explain the top factors from the information in the credit report that affected the score. The order in which FICO Score factors are listed is important. The first indicates the area that most affected that particular FICO Score and the second is the next significant area. Knowing these score factors can help you better understand your financial health over time. However, if you already have a high FICO Score (usually in the mid-700s or higher), score factors are informative but not as significant, since they represent very marginal areas where your score was affected.
Why is my FICO Score different than other scores I've seen?
There are many different credit scores available to consumers and lenders. FICO Scores are the credit scores used by most lenders, and different lenders may use different versions of FICO Scores. In addition, FICO Scores are based on credit file data from a particular consumer reporting agency, so differences in your credit files may create differences in your FICO Scores. The FICO Score is based on Equifax data that is being made available to you through this program is the specific score that we use to manage your account. When reviewing a score, take note of the score date, consumer reporting agency credit file source, score type, and range for that particular score.
Why do FICO Scores fluctuate or change?
There are many reasons why a score may change. FICO Scores are calculated each time they are requested, taking into consideration the information that is in your credit file from a particular consumer reporting agency (CRA) at that time. So, as the information in your credit file at that CRA changes, FICO Scores can also change. Review your key score factors, which explain what factors from your credit report most affected a score.
Comparing key score factors from the two different time periods can help identify causes for a change in a FICO Score. Keep in mind that certain events such as late payments or bankruptcy can lower FICO Scores quickly.
How do I check my credit report?
Because your FICO Score is based on the information in your credit report, it is important to make sure that the credit report information is accurate. You may get a free copy of your credit report annually. To request a copy of your credit report, please visit: http://www.annualcreditreport.com. Please note that your free credit report will not include your FICO Score.
Why are you providing FICO Scores?
Reviewing your FICO Scores can help you learn how lenders view your credit risk and allow you to better understand your financial health.
More answers to frequently asked questions can be found on the FICO website: http://ficoscore.com/faq/
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