MoneyWisdom Blog

Like many newlyweds, Tarah and Ryan of Littleton, MA, dreamed about becoming homeowners someday. Their first step? Getting a handle on their credit scores. A preliminary check in 2014 surprised Tarah; her score was lower than her husband’s.

Last week in a lending training session here at Hanscom FCU, we reviewed the five elements that make up a FICO score, a number between 350 and 850 that indicates to a lender how creditworthy a consumer is and how likely they are to pay off their debts. The higher the number, the more attractive the consumer is from a lending standpoint. I also learned that each element comprising the FICO score is weighted:

1. Know Your Starting Point

Obtain a copy of your credit report from all three credit bureaus so that you have a clear understanding of what it says about you and your credit history. Hanscom FCU members can request a free credit report, and one of our credit professionals will explain how to read the report.

If you are familiar with the way credit scoring works, you probably know that avoiding being “maxed out” on your credit cards and other revolving accounts generally impacts your score in a positive way. You might also be aware that the FICO score — the most popular model in a credit score review — dedicates 30% of its score calculation to how much of your available credit you are using. The lower percentage of available credit you are using, the better your FICO score will be. It would seem then that logic dictates that a no-limit credit card would be the best possible solution for this part of your FICO score calculation, since you theoretically have an infinite amount of available credit. But this is one place where logic fails.

To begin conquering debt, you’ll need to understand what you owe and what you are paying to maintain your debt. The amount you spend on finance charges might surprise you.

Have you ever requested your credit score from a credit bureau? You need to read this.

Earlier this month, the Consumer Financial Protection Bureau ordered Equifax and TransUnion to pay millions in fines and penalties. Both national credit bureaus misstated the usefulness and value of the credit scores they sold to consumers. The credit bureaus gave customers a score meant for educational purposes, while implying it was the score actually reviewed by lenders.

The term “Credit Score Review” is thrown around a lot these days. Companies from Discover Card to CreditKarma will tell you your credit score. They will even tell you about the 5 factors that make up your score: