FICO® Score Analysis - Example

Credit score: 686

Source of score: Equifax (BEACON®)

Reason codes: 10 1 5 8

Your BEACON/FICO score: 686

The information in your Equifax credit report has been summarized in a BEACON® score of 686. Most U.S. consumers score between 300 and 850. Generally, the higher your score, the more favorably a lender will view your application for credit. Compared to the national population, you are in the 35th percentile of consumers by credit risk. Statistically, a score of 686 is somewhat below the national average, though most lenders view this as a good score. Studies show that for consumers with scores similar to yours, the odds of becoming seriously delinquent (90+ days past due) on one or more credit accounts are 2.32 times higher than for people with an average score.

Understanding your percentile. Compared to the national population, your FICO® score is in the 35th percentile. This means that roughly 35% of consumers have scores lower than or equal to your own score, and 65% have scores which are higher.

How lenders view your FICO score

Many lenders use FICO scores as one method to estimate the risk associated with an individual’s application for credit. Simply put, the higher the score, the lower the risk. People with high FICO scores are proven to repay loans and credit cards more consistently than people with low FICO scores. And although the scores are remarkably accurate, no one can predict with certainty whether or not you will repay a credit account.

Frequently, there is more to consider in a credit decision than just a person’s credit history. Because the FICO score is based solely on the information in your credit report, many lenders bring other factors into their decisions as well, such as your income or employment history. So the FICO score itself, while important, is by no means the only factor on which your credit application is evaluated. It is also important to understand that every lender sets their own policies and tolerance for risk when making decisions. Though many lenders incorporate FICO scores into their decisions, there is certainly no single “cutoff score” used by all lenders. In fact, since they often consider additional information or special circumstances, some lenders may extend you credit even if your score is low, or decline your request although your score is high. Nonetheless, the FICO score is the most widely used and recognized credit rating, so it’s important that you know and understand your own score.

Most lenders will view consumers with a score of 686 as an acceptable risk. This is generally recognized as a good score, and a wide array of loans and credit products will likely be available to you, often at attractive rates. Even so, remember that lenders often incorporate other information into their decision process, in addition to the FICO score, so you might be offered different rates or terms by different lenders. Nonetheless, most lenders agree that scores around 686 indicate an acceptable level of risk.

Distribution. This chart shows the percentage of people who score in specific FICO score ranges. For example, about 5% of U.S. consumers have a FICO score between 500 and 549. Your score of 686 places you in the 650-699 range, along with 16% of the total population. (Note that the score ranges shown above are provided for your information, but they do not necessarily correspond to any particular lender's policies for extending credit.)

Credit repayment. The second chart demonstrates the delinquency rate (or credit risk) associated with selected ranges of the FICO score. In this illustration, the delinquency rate is the percentage of borrowers who reach 90 days past due or worse on any credit account over a two-year period. For example, the delinquency rate of consumers in the 500-549 range is 71%. This means that for every 100 borrowers in this range, approximately 71 will default on a loan, file for bankruptcy, or fall 90 days past due on at least one credit account in the next two years. As a group, the consumers in your score range, 650-699, have a delinquency rate of 15%.

Factors affecting your score. In addition to the score, you received four reason codes. These represent the top four reasons your score was not higher. The order in which these codes were returned to you is significant: the first code represents the factor with the strongest negative impact on your score, the second code had the next strongest impact, and so on. The best way to understand how you scored and what you can do to improve your score over time is to consider these top reasons.

First Reason Code: 10 Your first reason code is 10, “Proportion of balances to credit limits on bank/national revolving or other revolving accounts is too high”. This is the single most important factor affecting your score. Analysis of consumer credit behavior repeatedly finds that owing a substantial balance on revolving accounts relative to the amount of revolving credit available to you represents increased risk. In fact, the level of revolving debt is one of the most important factors in the FICO score. The score evaluates your total balances in relation to your total available credit on revolving accounts, as well as on individual revolving accounts. For a given amount of revolving credit available, a greater amount owed indicates a greater risk, and lowers the score. (For credit cards, the total outstanding balance on your last statement is generally the amount that will show in your credit report. Note that even if you pay off your credit cards in full each and every month, your credit report may show the last billing statement balance on those accounts.)

Paying down your revolving account balances is a good sign that you are able and willing to manage and repay your debt, and this will increase your score. On the other hand, shifting balances among revolving accounts, opening up new revolving accounts, and closing down other revolving accounts will not necessarily improve your score, and could possibly decrease your score.

Second Reason Code: 1 Your second reason code is 1, “Amount owed on accounts is too high”. This is the second most important factor affecting your score. The score measures how much you owe on the accounts (revolving and installment) that are listed on your credit report. (For credit cards, the total outstanding balance on your last statement is generally the amount that will show in your credit report. Note that even if you pay off your credit cards in full each and every month, your credit report may show the last billing statement balance on those accounts.) Research reveals that consumers owing larger amounts on their credit accounts have greater future repayment risk than those who owe less. You can improve your credit score by paying off your debts. However, consolidating or moving your debt around from one account to another will not raise your score, since the same amount is still owed. The best advice is to pay off your debts as quickly as you can.

Third Reason Code: 5 Your third reason code is 5, “Too many accounts with balances”. Analysis repeatedly finds that carrying balances on too many credit accounts at once is a predictor of future repayment risk. (For credit cards, note that even if you pay off your balance in full every month, your credit report may show a balance on those cards. The total balance on your last statement is generally the amount that will show in your credit report.) In order to improve your credit score, pay down the balances on your credit obligations. For revolving accounts, once they are paid down keep your balances low. Note that consolidating your debt by transferring balances from many accounts onto fewer accounts will not necessarily raise your score, because the same total amount is still owed. Fourth Reason Code: 8

Your fourth reason code is 8, “Too many inquiries last 12 months”. This reason appears when your credit report contains a large number of inquiries posted as a result of your applying for credit. Research shows that consumers who are seeking several new credit accounts are riskier than consumers who are not seeking credit. Inquiries are the only information lenders have that indicates a consumer is actively seeking credit. There are different types of inquiries that reside on your credit report. The score only considers those inquiries that were posted as a result of you applying for credit. Other types of inquiries, such as promotional inquiries (where a lender has pre-approved you for a credit offer) or consumer disclosure inquiries (where you have requested a copy of your own report) are not considered by the score.

The scores can identify “rate shopping” in the mortgage- and auto-lending environment, so that one credit search involving multiple inquiries is usually only counted as a single inquiry.

Typically, the presence of inquiries on your credit file has only a small impact on FICO scores, carrying much less importance than late payments, the amount you owe, and the length of time you have used credit. This reason rarely appears as a primary or secondary reason except in high-scoring files. As time passes the age of your most recent inquiry will increase, and your score will rise as a result, provided you do not apply for additional credit in the meantime. Typically inquiries are purged from the credit bureau files after two years.

A common misperception is that every single inquiry will drop your score a certain number of points. This is not true. The impact of inquiries on your score will vary – depending on your overall credit profile. Inquiries will usually have a larger impact on the score for consumers with limited credit history and on consumers with previous late payments. The most prudent action to raise your score over time is by applying for credit only when you need it.

Summary

Most lenders view consumers with a score of 686 as an acceptable risk. But remember that lenders often consider other factors beyond just the score, and those factors might help or hurt your application. Still, a score of 686 is considered to be acceptable by most lenders and would recommend you as a good candidate for many types of credit products.

The more you owe on revolving credit accounts - relative to the amount of credit available to you - the more your score may be affected. Paying down your revolving account balances is a smart way to help you increase your score over time.

Paying off your debts should improve your credit score. Consolidating or moving your debts around from one account to another will not, however, raise your score, since the same amount is still owed.

Paying off your debt on one or more accounts can raise your score.

To improve your score over time, apply for credit only when you need it.

Review your credit report from each credit reporting agency at least once a year and especially before making a large purchase, like a house or a car. You should make sure the information in your credit report is correct. You don't need to be concerned if the balance doesn't exactly match your credit card statement. But you do need to worry if the credit report includes late payments that you believe are in error. And you should verify that the accounts listed on your credit report are accounts that you own. Your credit score is based on your credit report, and lenders also review this information when making credit decisions.

If you feel that the information contained in your credit report is not accurate, you should contact the credit reporting agencies directly:

Equifax: (800) 685-1111 www.equifax.com

Experian: (888) 397-3742 www.experian.com

Trans Union: (800) 916-8800 www.transunion.com

For more information about FICO scores, please visit www.myFICO.com, and go to the “Understanding FICO Scores” and “Frequently Asked Questions (FAQ)” sections.

Fair, Isaac, FICO, myFICO and FICO Guide are trademarks or registered trademarks of Fair, Isaac and Company, Inc. in the United States and/or other countries. BEACON is a registered trademark of Equifax, Inc.

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