credit score

The Facts about Credit: Do you know your Number?

Your credit score can mean the difference between securing a historic low interest rate on a loan and being stuck in a higher tier.   Great credit scores are the result of one thing – a stellar credit history.

More than 18% of consumers have near perfect FICO scores (800-850). While, it may seem difficult to reach this level, especially for the 15% of consumers in the lowest FICO range (300-549), it’s not impossible.  The information I’m sending this month details the steps to take to begin improving your credit now.  We will start with facts about credit, including the information that comprises your credit score.  We will finish with three tips that will help you to improve your credit.

Share this information with family and friends who wish to improve or protect their credit.

Your credit score is one of the most important numbers you have.  Not only does your score affect your interest rates when applying for a loan, it can also impact your insurance rates, certain job prospects and even your chances of renting a great apartment.  As a result, improving one’s credit has become a multi-million dollar industry.

What’s your credit score?

Your credit score indicates to lenders and other businesses how much of a credit risk you pose if they allow you to borrow money.  The Fair Isaac Company (FICO) uses an algorithm that takes into account 30 different factors within your credit report to arrive at a score from 300-850.  The higher the score, the better the credit risk you are to lenders.  Other credit reporting agencies, such as Experian, Equifax and TransUnion, calculate their own credit scores within their own ranges; however the FICO score is the standard that lenders use when they pull your credit score.

How is your credit score calculated?

How long will dings to your credit be held against you?

In most cases it’s only a matter of time before they fall off your credit report. The good news is that the older the negative information, the less it impacts your credit score.

If you have had It will stay on your credit report
late payments 7 years
Judgements 7 years
A short sale 7 years
A foreclosure 7 years
Chapter 13 bankruptcy 7 years from filing date
Tax liens Until lien is paid plus 7 years
Chapter 7 Bankruptcy 10 years from filing date


Although it’s easy to become obsessed with improving your credit score, especially if you’re getting ready to apply for a loan, it’s best to focus on improving your overall credit report.  After all, a great credit history will help to boost your credit score.


Review your credit report once a year.  Type directly into your address bar on your browser for a free copy of your credit report from each of the major credit reporting companies; Equifax, Experian and TransUnion.

Although many websites will promise you a free copy of your credit report, they may also try to lure you into credit monitoring services that you may not need. Since you’re entitled to a free credit report each year, you may not need to pay a third party to monitor your credit for you.

Report any errors that you find.  If you see a mistake, contact the credit reporting company in writing and be sure to include copies of any supporting documentation.

Eliminate debt.  Since reducing debt takes time, set short-term goals to tackle each debt, starting with the debt that has the highest interest rate.  As each debt is paid off, use the money you were paying for those debts to accelerate paying off the next debts and so on. And once you’ve eliminated your debt, try to use less that 35% of your available credit. Your goal should be to have no consumer debt whatsoever; eventually owning your home and automobiles outright. “The rich rules over the poor, and the borrower is the slave of the lender”. The Bible

Hard inquiries into your credit history may remain on your credit report for two years, but FICO will only count the against your credit score for 12 months.


Russ Brown, CFP