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Members Should Keep Tabs on Their FICO Credit Scores
As personal banking and lending services contract, NAHB is reminding members to monitor their FICO credit scores and maintain the best scores for their personal credit cards, mortgages and other consumer loans.
FICO scores — one score from each of the three major credit bureaus — are the credit scores that most lenders use to determine a borrower’s credit risk. They can help determine the amount and terms available to a consumer.
The national median FICO score is 723. A higher score indicates that the borrower is less risky to a lender than about half of the population with a credit file.
The FICO credit score is based on five factors. In order of importance, they include:
- Payment History — This measures a consumer’s habit of paying bills on time. It also weighs delinquency, bankruptcy and liens. This accounts for 35% of a FICO score.
- Outstanding Debt — Calculated as a ratio of available credit compared to the amount owed, debt should not exceed 20% of income. Outstanding debt accounts for 30% of a FICO score.
- Length of Credit History — How long a consumer has had a credit file and the latest activity of each account is 15% of a FICO score.
- New Credit — New accounts opened and the number creditors’ inquiries account for 10% of a FICO score.
- Types of Credit — A consumer’s total number of active credit card, mortgage, installment loans and other accounts makes up 10% of a FICO score.
Under the provisions of the Fair Credit Reporting Act (FCRA), consumers can request a free copy of their credit report every 12 months from each of the three major credit reporting agencies — Equifax, Experian and Trans Union.
Members should know what is on their credit report so that they can identify any problems or errors and take action to correct them — such as contacting their creditors if they believe something on their report is inaccurate.
The Federal Trade Commission, which protects consumers, directs consumers to www.annualcreditreport.com for their free credit reports.
For more information on consumer credit reports and scoring from the Federal Trade Commission, click here.
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