- 1 What Is Your FICO Credit Score?
- 2 What is a Credit Score: Classic FICO vs VantageScore 3.0
- 3 Citi Free FICO Scores Are Live – With Something Different
- 4 Average Credit Score in America Reaches New Peak at 700
What Is Your FICO Credit Score?
Lenders use FICO scores to decide whether to lend you money, and what interest rate you'll get. It's very important that you have a good score, or else you'll be denied auto loans, mortgage loans, or even cell phone or other payment plans. Insurance companies are even using your FICO score to decide what to charge you! If you want to qualify for any loan and get a low interest rate that will save you a ton of money, you need to have a solid FICO score.
FICO scores range from 300 to 850. Most people have a pretty decent score--the median is 723. That score will get you favorable loans. But if you're the type of person who is late on your bills or maxes out your cards or commits any number of other credit no-nos, your score will be much less than this. And to put it simply, a low FICO score sucks. So you want to know, what's your FICO score? This quiz will give you a good idea. Answer honestly.
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What is a Credit Score: Classic FICO vs VantageScore 3.0
To help you learn more about your personal credit rating, we've broken it down for you. Simply put, your credit score is a three-digit expression of your creditworthiness. However, it is way more than that: your credit score is an important part of your financial stability. Your credit score is one of the important deciding factors utilized by financial institutions and lenders when deciding your interest rate when you get a home; car, loan or credit card.
Who are the Credit Score Players?
Over the years, the FICO score has been used most often in determining creditworthiness. VantageScore is a new player and follows a slightly different formula to achieve the same end, namely determining your risk level.
Credit scores are commonly referred to as a FICO score. Developed in 1989 by Fair Isaac Corporation, the FICO score is a mathematical formula that takes into account several factors in a person's credit history to determine their risk level. It's currently the most widely used model by banks and other lenders with an estimated 90 percent market share.
Payment history - 35 percent. Paying on time, paying late or not paying at all are all factors.
Account balances - 30 percent.
The age of each account - 15 percent.
Types of accounts - 10 percent. The different types are revolving, installment, mortgage and alternative financial services such as payday loans.
Recent inquiries - 10 percent. Repeated inquiries for new lines of credit over a short period can affect your score, though rate shopping for mortgages, student loans and car loans are shielded.
Though the score was developed by Fair Isaac Corporation, they do not calculate it. That's done by each of the credit bureaus, TransUnion, Equifax and Experian, based on information in your credit report. Because each bureau collects different information, the credit scores will differ between the three. For example, the retail card you just opened might be reported to TransUnion and factored into their score, but not the other two.
The most complete picture of your creditworthiness is therefore achieved by obtaining a score from the 3 major credit bureaus: Equifax, Experian and TransUnion.
Created in 2006, the VantageScore was designed as a joint effort by the 3 credit bureaus. The breakdown of what goes into a VantageScore is slightly different than that of a FICO score. The factors and their weight are:
Payment history - extremely influential.
Account balances - highly influential.
The age of each account - highly influential.
Total outstanding debt - moderately influential.
Recent inquires and new credit - less influential.
Total available credit - less influential.
VantageScore 3.0, the most recent version of the formula, aims to offer a more accurate picture of an individual's credit history and thus a better prediction of their creditworthiness. VantageScore 3.0 also offers the same 300 to 850 score range as FICO. However, less than 10 percent of lenders depend on VantageScore to determine creditworthiness.
As a competing service, there are a few differences between VantageScore 3.0 and FICO.
Length of History Needed for a Score
FICO requires at least a six-month credit history and reporting from at least one account in that time period to calculate a score. VantageScore 3.0 only requires one month and reporting from at least one account in the last two years, which is helpful for consumers just starting off as well as those who've been inactive for an extended period.
VantageScore 3.0 does not penalize consumers for paid or otherwise settled collection accounts that appear on their credit report. Because they remain on your report for seven years, collection accounts are factored into a FICO score, though the impact can be reduced by paying off the debt.
For collection accounts with an outstanding balance below $100, your FICO score completely ignores it while VantageScore 3.0 greatly reduces the effect of balances below $250 on your score, but it is still a factor.
Type and Length of Account
Another big difference between FICO and VantageScore 3.0 is the way different account types affect your score. VantageScore 3.0 is advertised as a more accurate scoring system, therefore different account types are given different weight. A first mortgage, for example, has a different impact than a home equity loan. A late payment on a mortgage also has a greater impact than a late payment on a retail store account. In comparison, a FICO score has no differentiation.
VantageScore 3.0 is available for free through some free credit report websites while consumers must pay a fee to obtain their FICO score.
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Citi Free FICO Scores Are Live – With Something Different
Monday, January 19, 2015
The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.
Brian worked in banking and consumer marketing for 15 years before co-creating Magnify.
Citibank offers a free FICO score for all cardholders of Citi branded credit cards.
You can view your FICO score by following this link and logging into your account. Or if you’re already logged in, click on the ‘Benefits’ tab and you’ll see a link to the score report. You can also see your score in the Citi mobile app.
- It’s an Equifax score. This is the first big bank to provide an Equifax based score. Barclays provides a Transunion based score. And no big bank yet offers an Experian based score, though First National of Omaha does for its credit card customers, and USAA will this Spring.
- The scale of the score is from 250 to 900, not the 300 to 850 you’re used to. That’s not because this is a Vantage Score (it’s still a real FICO), but because Citi is showing you the specific score used for credit card accounts. FICO offers a separate scoring model for credit cards that helps banks better target customers for the unique demands of a credit card. That score ranges from 250 to 900 rather than the 300 to 850 range you’re used to seeing, and Citi has decided to let you see the very score it uses.
- There is no historic data. You are given a static score with the date the score was last updated by Citi.
- You need a Citi branded card to get the free FICO score. So if you for example have a store credit card from Citi like a Sears card you won’t be eligible for this score benefit. But if your card has the Citi logo on it, you’re good to go.
How can I compare this score to others?
Because this score is on a different scale than the 300 to 850 scale you see on most credit reports, you might be confused.
Just focus on the range your score falls in, and you can easily convert it to scores you’re used to.
Here’s how the Citi credit card score compares to other scores you might be used to seeing:
- Poor: 579 or less (579 or less for typical scores)
- Fair: 580-699 (580 – 639 for typical scores)
- Average: 670-739 (640 – 699 for typical scores)
- Good: 740-799 (700 – 749 for typical scores)
- Excellent: 800+ (750 – 850 for typical scores)
So for example if another credit score like Credit Karma’s Transunion score shows you as a 770, but your Citi score shows you as an 820, don’t worry. You are in the ‘Excellent’ score range for both scores.
Chase will launch free scores for Chase Slate card holders later this year. And American Express has been testing free FICO scores for some customers.
Free real FICO scores are a great thing because you can quickly diagnose errors that may arise across the three credit bureaus.
Of course you should always request your free full annual credit report at AnnualCreditReport.com (the only government endorsed truly free source) – and check for errors. But getting regular updates from your bank will keep you even more on top of things, and we applaud this move.
Brian Karimzad is a writer at MagnifyMoney. You can email Brian at [email protected]
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Average Credit Score in America Reaches New Peak at 700
Thursday, August 17, 2017
The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.
is a freelance writer and quantitative marketing consultant. Hannah founded the site Unplanned Finance.
In late 2016, American consumers hit an important milestone. For the first time in a decade, over half of American consumers (51%) recorded prime credit scores. On the other side of the scale, less than a third of consumers (32%) suffered from subprime scores. 1 As a nation, our average FICO® Score rose to its highest point ever, 700. 2
Despite the rosy national picture, we see regional and age-based disparities. A minority of Southerners still rank below prime credit. In contrast, credit scores in the upper Midwest rank well above the national average. Younger consumers struggle with their credit, but boomers and the Silent Generation secured scores well above the national average.
In a new report on credit scores in America, MagnifyMoney analyzed trends in credit scores. The trends offer insight into how Americans fare with their credit health.
- National average FICO® Scores are up 14 points since October 2009. 3
- 51% of consumers have prime credit scores, up from 48.1% in 2007. 4
- One-third of customers have at least one severely delinquent (90+ days past due) account on their credit report. 5
- Average VantageScores® in the Deep South are 21 points lower than the national average (652 vs. 673). 6
- Millennials’ average VantageScore® (634) underperformed the national average by 39 points. Only Gen Z has a lower average score (631). 7
Average FICO® Score: 700 8
Average VantageScore®: 673 9
Percent with prime credit score (Equifax Risk Score >720): 51% 10
Percent with subprime credit score (Equifax Risk Score <660): 32% 11
Percent with at least one delinquency: 32% 12
Average number of late payments per month: .35 13
Average credit utilization ratio: 30% 14
Percent severely delinquent debt: 3.37% 15
Percent severely delinquent debt excluding mortgages: 6.9% 16
States with the best and worst credit scores
Credit scoring companies analyze consumer credit reports. They glean data from the reports and create algorithms that determine consumer borrowing risk. A credit score is a number that represents the risk profile of a borrower. Credit scores influence a bank’s decisions to lend money to consumers. People with high credit scores will find the most attractive borrowing rates because that signals to lenders that they are less risky. Those with low credit scores will struggle to find credit at all.
Banks have hundreds of proprietary credit scoring algorithms. In this article, we analyzed trends on three of the most famous credit scoring algorithms:
- FICO® Score 8 (used for underwriting mortgages)
- VantageScore® 3.0 (widely available to consumers)
- Equifax Consumer Risk Credit Score (used by the Federal Reserve Bank of New York)
Each of these credit scores ranks risk on a scale of 300-850. In all three models, prime credit is any score above 720. Subprime credit is any score below 660. All three models consider similar data when they create credit risk profiles. The most common factors include:
- Payment history
- Revolving debt levels (or revolving debt utilization ratios)
- Length of credit history
- Number of recent credit inquires
- Variety of credit (installment and revolving)
However, each model weights the information differently. This means that a FICO® Score cannot be compared directly to a VantageScore® or an Equifax Risk Score. For example, a VantageScore® does not count paid items in collections against you. However, a FICO® Score counts all collections items against you, even if you’ve paid them. Additionally, the VantageScore® counts outstanding debt against you, but the FICO® Score only considers how much credit card debt you have relative to your available credit.
American credit scores over time
Average FICO® Scores in America are on the rise for the eighth straight year. The average credit score in America is now 700.
On top of that, consumers with “super prime” credit (FICO® Scores above 800) outnumber consumers with deep subprime credit (FICO® Scores below 600).
We’re also seeing healthy increases in prime credit scores, defined as Equifax Risk Scores above 720. According to the Federal Reserve Bank of New York, 51% of all Americans have prime credit scores as measured by the Equifax Risk Score. Following the housing market crash in 2010, just 48.4% of Americans had prime credit scores. 20
A major driver of increased scores is the decreased proportion of consumers with collection items on their credit report. A credit item that falls into collections will stay on a person’s credit report for seven years. People caught in the latter end of the real estate foreclosure crisis of 2006-2011 may still have a collections item on their report today.
In the first quarter of 2013, 14.64% of all consumers had at least one item in collections. Today, just 12.61% of consumers have collections items on their credit report. Overall collections rates are approaching 2005-2006 average rates. 40
Credit scores and loan originations
Following the 2007-2008 implosion of the housing market, banks saw mortgage borrowers defaulting at higher rates than ever before. In addition to higher mortgage default rates, the market downturn led to higher default rates across all types of consumer loans. To maintain profitability banks began tightening lending practices. More stringent lending standards made it tough for anyone with poor credit to get a loan at a reasonable rate. Although banks have loosened lending somewhat in the last two years, people with subprime credit will continue to struggle to get loans. In June 2017, banks rejected 81.4% of all credit applications from people with Equifax Risk Scores below 680. By contrast, banks rejected 9.11% of credit applications from those with credit scores above 760. 22
Credit scores and mortgage origination
Before 2008, the median homebuyer had an Equifax Risk Score of 720. In 2017, the median score was 764, a full 44 points higher than the pre-bubble scores. The bottom 10th of buyers had a score of 657, a massive 65 point growth over the pre-recession average. 23
Some below prime borrowers still get mortgages. But banks no longer underwrite mortgages for deep subprime borrowers. More stringent lending standards have resulted in near all-time lows in mortgage foreclosures.
Credit scores and auto loan origination
The subprime lending bubble didn’t directly influence the auto loan market, but banks increased their lending standards for auto loans, too. Before 2008, the median credit score for people originating auto loans was 682. By the first quarter of 2017, the median score for auto borrowers was 706. 26
In the case of auto loans, the lower median risk profile hasn’t paid off for banks. In the first quarter of 2017, $8.27 billion dollars of auto loans fell into severely delinquent status. New auto delinquencies are now as bad as they were in 2008. 28
Consumers looking for new auto loans should expect more stringent lending standards in coming months. This means it’s more important than ever for Americans to grow their credit score.
Credit scores for credit cards
Unlike other types of credit, even people with deep subprime credit scores usually qualify to open a secured credit card. However, credit card use among people with poor credit scores is still near an all-time low. In the last decade, credit card use among deep subprime borrowers fell 16.7%. Today, just over 50% of deep subprime borrowers have credit card accounts. 30
The dramatic decline came between 2009 and 2011. During this period, half or more of all credit card account closures came from borrowers with below prime credit scores. More than one-third of all closures came from deep subprime consumers.
However, banks are showing an increased willingness to allow customers with poor credit to open credit card accounts. In 2015, more than 60% of all new credit card accounts went to borrowers with subprime credit, and 25% of all the accounts went to borrowers with deep subprime credit.
Consumers across the nation are seeing higher credit scores, but regional variations persist. People living in the Deep South and Southwest have lower credit scores than the rest of the nation. States in the Deep South have an average VantageScore® of 652 compared to a nationwide average of 673. Southwestern states have an average score of 658.
States in the upper Midwest outperform the nation as a whole. These states had average VantageScores® of 689.
Unsurprisingly, consumers across the southern United States are far more likely to have subprime credit scores than consumers across the north. Minnesota had the fewest subprime consumers. In December 2016, just 21.9% of residents fell below an Equifax Risk Score of 660. Mississippi had the worst subprime rate in the nation: 48.3% of Mississippi residents had credit scores below 660 in December 2016. 35
These are the distributions of Equifax Risk Scores by state: 37
In general, older consumers have higher credit scores than younger generations. Credit scoring models consider consumers with longer credit histories less risky than those with short credit histories. The Silent Generation and boomers enjoy higher credit scores due to long credit histories. However, these generations show better credit behavior, too. Their revolving credit utilization rates are lower than younger generations. They are less likely to have a severely delinquent credit item on their credit report.
Gen X and millennials have almost identical revolving utilization ratios and delinquency rates. Compared to millennials, Gen X has higher credit card balances and more debt. Still, Gen X’s longer credit history gives them a 21 point advantage over millennials on average.
To improve their credit scores, millennials and Gen X need to focus on timely payments. On-time payments and lower credit card utilization will drive their scores up.
A report by FICO® showed that younger consumers can earn high credit scores with excellent credit behavior. 93% of consumers with credit scores between 750 and 799 who were under age 29 never had a late payment on their credit report. In contrast, 57% of the total population had at least one delinquency. This good credit group also used less of their available credit. They had an average revolving credit utilization ratio of 6%. The nation as a whole had a utilization ratio of 15%. 39