The world of credit scores can be complicated and hard to follow.

Couple that
with the importance of your knowing and managing your credit score. You can
work yourself into a tailspin trying to access, decipher and figure out your credit
score. Here are a few tips on managing your credit score.

What is a credit score?

A credit score is a 3-digit number between 300 – 850, that relates to how likely you are to repay debt. Lenders
use it to decide whether they’ll approve someone for a credit card or a loan and to set a rate of interest on that
loan. The higher your score, the lower interest you’ll pay.

The average credit score of Mainers is 689. Is it true someone can have more than one score
and how do they calculate your credit score?

Yes, you can have so many different credit scores. The reason is that not all scores measure the same things in
the same way. Experian, Equifax and Trans Union are the national credit bureaus that capture, update and store
credit histories. They look at:

o Payment history = 35% - pay on time all the time.

o Credit Utilization = 30% - Never owe more than 30% of your credit limit.
o Length of credit history = 15% - Keep your oldest credit card even if you don’t use it.
o New credit = 10% - Don’t open too many accounts in a 12-month period.
o Types of credit = 10% - Variety is good – Auto, home, student loans, and 2 – 3 credit cards.

Because you can have a different credit score from each bureau, it’s more important to look at the range your
credit score falls in
Doesn’t checking your credit score hurt your score?

Checking your score on an app like Credit Karma for example, is considered a soft inquiry and will not hurt your
score. As a matter of fact, we encourage knowing and monitoring your credit scores for any changes by using
one of these free apps.

A hard inquiry is when you are applying for a credit card, or any loan. Too many hard inquires will hurt your
score.

If someone wants to boost their score, what do you recommend?

o Never make a late payment – that could lower your score by as much as 100 points.
o Pay down your balances to less than 30%
o Remove any collection account by negotiating a pay for delete in writing before paying it off.
o Call your credit card company and request a credit limit with a soft pull of your credit.

Back in the 1800’s, most credit was conducted by businesses, not consumers. In the
early days of credit for consumers, character-based decision-making was part of the
process. A consumer’s credit score was assessed using credit information, an individuals’ social, political and
personal life habits. In the 1950’s, Bill Fair, and engineer, and Earl Isaac, a mathematician, created an
automated scoring system that became known as the FICO score. They sold their fairer system of a consumer’s
credit score to banks and retailers in the U.S. and around the world.
The Fair Credit Reporting Act was passed in 1970, creating a regulated system regarding what information
would be collected, what could be reported and for how long, and how consumers could obtain copies of their
credit reports.

There’s been a lot of news circulating lately about a change in the way a FICO score is
calculated. How does a FICO score different from the other credit scores and should we be
concerned?
Thirty years ago, the Fair Isaac Corporation debuted the FICO score. An industry-standard for scoring
creditworthiness that was fair to both lenders and consumers. A FICO score is used by 90% of the top lenders in
America.
Today, consumer debts are at a record high so the FICO credit scoring method will place more importance on
missed payments, rising debt levels, and on borrowers who have taken out personal loans to consolidate debt.
For those consumers who manage loans and debt well, they will likely see their score rise higher. For those who
typically miss payments and keep high credit card balances, the changes to the FICO scoring model could lower
the overall credit scores for many Americans.

For more on financial wellness, go to egcu.org