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Living with credit

FICO report offers insight into my credit score, borrowing behavior

Jeremy Simon

What do my eight years of credit history, three open accounts and no missed payments equal? According to FICO, a “very good” credit score of 746.

Ahead of the holidays, FICO sent me a gift card with a promotion code that enabled me to request a free score and report from myFICO.com. (Ah, the perks of writing about credit scoring!) The “FICO standard” package (which typically costs $19.95) included information from my TransUnion credit report as well as big, bold letters declaring my TransUnion FICO score to be 746.

“Your TransUnion FICO score is very good,” the report informed me. “Your score is above the average score of U.S. consumers and demonstrates to lenders that you are a very dependable borrower.” Yes, yes I am! FICO’s report also reminded me that its scores range from 300 to 850, with higher scores being better and viewed more favorably by lenders.

The report explains that consumers with scores of 746 are considered low risk by most lenders, because only 5 percent of people with this score wind up in serious credit trouble (meaning becoming 90 days past due or worse over a two-year period). That compares with 2 percent in the 750 to 799 score bracket and a measly 1 percent in the 800-plus FICO scoring tier.

FICO’s scoring model considers me low risk because I have an established credit history, have not missed payments and am not actively looking for credit. Here’s how I measure up:

  • Zero accounts with missed payments. FICO says about 93 percent of high achievers have no missed payments, but for those that have been delinquent, the missed payment took place an average of nearly four years ago.
  • Oldest account was opened eight years ago, with an average account age of four years. Those pesky high achievers, meanwhile, have 19 years, on average, of history for their oldest account, with an average account age between six and 12 years.
  • Not actively seeking credit, with no applications in the past year. About 72 percent of high achievers didn’t apply for credit in the past year, but of those who did, about 20 percent applied only once.

But the report didn’t just come with gold stars and smiley faces — some of my approach to borrowing could be better. The report breaks down the various ingredients of a FICO score and gave me a rating for each one. While I earned a “great” rating for my payment history and a “very good” for my amount of new credit, my amount of debt and length of credit history, however, were each rated as “good.”

Why just “good”? Apparently, my 19 percent ratio of revolving balances to my credit limits is too high, considering FICO high achievers have an average ratio of 7 percent. My debt load included the balances reflected on my most recent card statements, including one balance that I had revolved inadvertently from the previous month. (I typically pay my balances in full every billing cycle, but recently forgot to pay one of my cards. I made sure to call the bank and get current on that account, paying it off in full.)

To improve those debt-to-limit ratios, FICO recommends keeping balances low. To do that, I could use my cards less and request higher limits from my banks. Based on the fact that many banks report the debt levels listed on borrowers’ monthly statements to the credit bureaus, I also could start making payments on my cards more than once a month.

Additionally, FICO says my three credit accounts (two cards and a mortgage) with balances are “too many.” Interestingly, though, the report says that FICO high achievers have an average of three credit accounts with balances. Hmmm. So while the report says I should reduce the number of accounts that carry a balance, they shouldn’t get their hopes up about my debt suddenly vanishing — unless FICO is willing to pay off my mortgage.

See related: The components that make up a FICO credit score, Pay off your balance each month? Your credit report may not show it

 

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  • Megan

    Thanks for the break down! One quick comment:
    “Additionally, FICO says my three credit accounts (two cards and a mortgage) with balances are “too many.” Interestingly, though, the report says that FICO high achievers have an average of three credit accounts with balances.”
    The reason for this is that FICO likes to see less than half your accounts with balances – so if you have 3 accounts, only 1 (the mortgage) should report and the other two should be $0. This is done by paying in full before the statement cuts.
    Congrats on your score and best wishes to you on moving it even higher.

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