Credit, Credit Cards and Banks: What’s a FICO score?

By Sandra Neri

What’s a FICO score?

In the late 1950s, Fair Isaacs and Company was among the first companies to develop and implement credit scores. Hence, “FICO” became the popular acronym for their credit scoring system. Today, Fair Issacs credit scoring is behind the scores you see from the three primary credit agencies: Experian, Equifax, and TransUnion.

FICO credit scores can range from 300 to 900. This tells lenders how good or bad a risk you are when it comes to lending you money.  Your FICO credit score depends on a number of different factors, including:

  • Length of your credit history
  • Late payments, missed payments, and underpayments
  • Amount of available and used credit
  • Employment history
  • Number of credit cards issued
  • Loan history
  • Any negative credit information

A low score, such as 500, could result in much higher interest rates on the things you may be applying for (a mortgage or a car loan) and your application can be rejected outright. Conversely, an 850 would get you the lowest rates, and a low down payment.

Here are some tips to improve or maintain your score.

  • Pay off credit card bills in full each month.
  • Don’t open and close credit card accounts often.
  • Maintain two or three of your oldest credit card accounts, and try to increase the credit limits on them.
  • Do not “max out” your credit cards.
  • Get copies of your credit reports directly from the three major credit bureaus at least once a year, and definitely before you go mortgage shopping. Review them carefully for mistakes, and resolve any inaccuracies as quickly as possible.

Some companies who may be hiring run a credit check on applicants, so bad credit could possibly keep you from a job. Some landlords will do a credit check, so a low credit score may help you lose an apartment.  Car dealer ships will give you a higher interest rate because of bad credit, so you will end up paying a lot more for a car if you have bad credit.Raising a low credit score will take time, because you need to prove that you can handle debt responsibly over time. Don’t expect that you can raise a 600 to a 700 in a matter of weeks. While good lenders will look at more on a credit report than just a number, the FICO credit score is an important starting point for lenders to evaluate the level of risk you pose.

Be Careful When Using Your Credit Card or Bank Debit !

Cash-back or Reward Points-The concept of earning money for spending can be very seductive. If you tend to pay with credit just because you know you are “earning” a portion of it back in the form of cash or rewards points, you could be fueling a dangerous addiction to credit card spending. Cash-back credit cards typically pay you back a very small percentage of your charges — think $1 for every $100 you charge. Unless you’re very disciplined about paying off your entire balance by month’s end, the money you earn back will barely cover the interest charges you acquired on that spending spree. Go to to see a chart of how credit cards and their options compare to one another.

Over drafting-Be aware of your banks overdraft policies, and how much they charge. I admit to having had a good number of overdraft fees taken out in my past, but it taught me a valuable lesson. While you cannot avoid a bank that will charge for over drafting , I have opted to have them deny any purchase that is more than my account balance. At my bank, this option will not work on payments you have signed up to be automatically withdrawn, so check you balance before you know a certain payment is about to be automatically paid by your account.

Bank Fees-Make sure you are aware of what a bank will charge you a fee for every month. For example, my bank charges $9.95 if I do not swipe my card for a purchase 15 times a month.  When I asked why the bank does this, I was told by my bank that the bank loses money if your money just sits there. If you are the type who rarely uses that bank debit card, you may be better off opening a savings account.

Think Before you Spend –Ask yourself if you really need that item?, and more importantly, can you afford it? Instead, use that money to pay down debt. Use a credit card calculatorto explore how long it will take you to pay down each card, and achievable goals.Just Google credit card calculator.

Do Not Obsess Over What Others Have– If you’re constantly comparing yourself with others and trying to outdo the neighbors with material goods, you could be fueling a debt addiction Avoid serious financial problems by living within your means and buying only things you can honestly afford. Trying to keep up with the Joneses can be the fast track to debt problems or even Scams-While most waiters and waitresses are honest, hardworking persons, there are a few dishonest ones. One “skimming scam” that has occurred happens when a waiter/waitress gets your credit card and tab, then decide to add their own tip. Just ALWAYS check your credit card statements, online that night if you can.

 Never too Early to Plan for the Future

Ah the future, that faraway galaxy that you don’t have to think about for a long time right? No. Don’t think of it that way. Because faster than you can imagine, it is smack dab in your face, and you find yourself penniless. Look into savings accounts, and CD’s (Certificate of Deposits). While most savings require little money to open with, some do not earn interest over time. CD’s require more money to open (some at $500.), they earn interest, and your money grows. If you have direct deposit into a checking, you can open a savings with $25.00 (at some banks), then arrange for a portion of your check to go into your savings. Don’t think about that little portion, just leave it, or if it helps think of it as a bill you have to pay. If you are thinking you don’t have the money to save because you have a low paying job, yet you buy McDonalds and Starbucksevery week,guess what…you have the money to put into a savings or CD !

Sandra Neri

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