Credit Scores

Q&A: Credit score changes

August 10, 2015 By Liz Weston

Dear Liz: My Discover card started including a complimentary credit score with my statement. My first report was 840. Each month since has been lower.

Two months ago it was 812 and the last one was 800. I have not applied for any new loans, cards or other credit. My limit on this card is $4,000, and I never charge more than $500 each month, which is paid in full. Why does my number keep dropping when I’m doing nothing different?

Answer: You may not be doing anything different, but the underlying information used to create your credit scores changes all the time.

The company that creates the leading credit scoring formula, FICO, says 8 of 10 people experience changes to their FICO scores by up to 20 points from month to month.

One factor that typically changes: the balances reported by your creditors. The fact that you pay your credit card in full is wise, but irrelevant to your scores.

The balances transmitted to the credit bureaus and used to calculate your scores may be the balances from your last statement, or from a random date in the previous month. If you have other credit accounts and loans, the balances from those factor into your scores as well.

Other things can also change. For example, an old, closed account may “fall off” your credit report, which could affect your credit utilization (how much of your available credit you’re using) as well as the average age of your credit accounts.

Also, every month your active accounts get older, which is typically a positive factor.

So you’ll see changes even when you’re looking at the same type of score from the same credit bureau.

You would see even more variation if you could see all your scores, since lenders use various formulas and pull scores from three credit bureaus.

Although the FICO score is the leading formula, that doesn’t mean the FICO you’re seeing is the FICO a particular lender is using. The lender may use a newer or older version of the formula — or one tweaked to the auto lending or credit card industry, for example.

You don’t have much to worry about, in any case. Scores over 800 indicate that you’re quite unlikely to default, so lenders should give you their best rates and terms if you do decide to apply for credit.

Your credit score may matter more than your driving record

August 6, 2015 By Liz Weston

The vast majority of auto insurers use credit information to help determine your premiums, except in the three states where it’s not allowed (California, Massachusetts and Hawaii). Credit scores don’t just matter–a new special investigation by Consumer Reports has found that sometimes your credit scores matter more than your driving record.

The researchers hired a company called Quadrant Information Services, which gathers the mathematical pricing formulas insurers have to file with the states. They used the data to create 20 hypothetical policyholders and analyzed what happened when various ratings factors were changed. In Kansas, for example, a moving violation would boost a single policyholder’s premium by $122 on average, but a good (rather than a great) credit score would increase it by $233. A bad score could drive it up by $1,3o1.

The credit scores insurers use aren’t the same as the ones lenders use, and you have no right to see the insurance scores that are being used to judge you.

The researchers get a bit off track when they imply that using credit scores discriminates against the poor, because that isn’t something that’s backed up by research. But you should have a right to see any score that’s being used to judge you, and to challenge the accuracy of the underlying information that goes into the score.

Thursday’s need-to-know money news

July 30, 2015 By Liz Weston

Today’s top story: Avoiding financial aid scams. Also in the news: Escaping the credit card fee trap, a beginner’s guide to your company’s stock plan, and the credit score for small businesses.

Not So FAFSA: How to Avoid a Student Aid Scam
Protecting both your information and your child’s.

How to Escape the Credit-Card Fee Trap
Don’t give the banks more than they already want.

A Beginner’s Guide to Your Company’s Employee Stock Plans
Learning the ins and outs of your company’s stock options.

The credit score you’ve never heard of
If you’re a small business owner, pay attention.

Should you send your kid to college with a credit card?

July 28, 2015 By Liz Weston

Savvy parents know the importance of building a good credit history. They also know that paying with a credit card can be more convenient and secure than other methods.

But personal finance expert Janet Bodnar has one word of advice for parents thinking of providing their college-bound children with a credit card: don’t.

“It’s dangerous and it’s not necessary,” said Bodnar, editor of Kiplinger’s Personal Finance and mother of three college graduates.

On the other hand, personal finance columnist Kathy Kristof—who also writes for Kiplingers and who has sent two children to college—says students who have been taught how to handle money can be responsible credit card users. She added her kids as authorized users to one of her credit cards, and said it’s worked out well.

You can read more in my Reuters column this week, “Start college kids with bank accounts, not credit cards.” Bodnar has more tips for parents at “Rules for raising money-smart kids.”

Tuesday’s need-to-know money news

July 28, 2015 By Liz Weston

Today’s top story: More than half of college students don’t check their credit scores. Also in the news: Avoiding common home buying mistakes, the habits of successful savers, and three employee benefits you may be missing.

More Than Half of Students Don’t Check Their Credit Scores
A very big mistake.

How To Avoid Common Home Buying Mistakes
Don’t turn your home into a money pit.

6 Habits of Highly Successful Savers
Learning from the best.

3 Sweet Employee Benefits You May Be Missing
You may be leaving money on the table.

What’s a Tax Consultant, and Do You Need One?
Deciding when you need tax help.

My FICO score is 846. And 796. And 878. And…

June 30, 2015 By Liz Weston

One of the most persistent credit scoring myths is that you have one.

You don’t have one, you have many, and they change all the time.

The dominant model is the FICO, but even that comes in many flavors. You can get a taste for how many at MyFICO.

When I bought my scores there recently, my FICO 8 from Equifax was 846 on the 300-to-850 scale. But my FICO 5, the score Equifax most commonly sells to mortgage lenders, was 797.

There was even wider variation in my auto and credit card scores, are calculated on a 250-to-900 scale. My FICO Auto Score 8 was 867, while my FICO Auto Score 5 was 810. My FICO Bankcard Score 8 was 869 and my FICO Bankcard Score 5 was 797.

My scores from Experian ranged from 796 (FICO Score 3, used by some credit card issuers) to 878 (FICO Auto Score 8). The clutch of numbers from TransUnion ran from 806 (FICO Score 4, used by some mortgage lenders) to 874 (FICO Auto Score 8).

MyFICO used to serve up just one score per bureau. I like this wider view, since it better reflects the fact that lenders use different versions and generations of the formula.

TMI? Maybe. But I’ll take it over the days when credit scores were such a closely-guarded secret that you weren’t even supposed to know they existed.