The ins and outs of credit scores

The Federal Savings Bank

December, 2012

With the holiday season quickly approaching, many Americans are looking to purchase presents for their loved ones, but also keep their credit score in the best condition. Considering the number of Americans who will use their credit cards during the holiday season, financial advisors are giving consumers keys to understanding their credit scores and methods of keeping them intact in case they want to make a new home purchase in 2013.

Banks and other financial institutions have been using FICO scores for years in order to determine how much of a risk borrowers are. FICO scores, named after the company that created it, Fair Isaac & Company, typically range between 300 and 850, with 300 being the lowest and 850 being the highest.

Close to 60 percent of people have credit scores of 700 and above and credit experts suggest that a 720 or above is the best score to have to be attractive to lenders because it would place them in the same category as people with a score of 800 or 820.

Ray Martin, financial expert, recently broke down exactly how a FICO score is determined, stating that 35 percent of the score depends on payment history, 30 percent depends on amount owed, 15 percent on length of credit history, 10 percent on new credit and another 10 percent on types of credit in use.

"Opening several new credit accounts in a short period of time can lower your credit score," Martin added. "Also multiple credit report inquiries can represent a greater risk, but this does not include any requests made by you, an employer or by a lender who does so when sending you an unsolicited, "pre-approved" credit offer. Also, to compensate for rate shopping, the score counts multiple inquiries in any 14-day period as just one inquiry."

Keeping a close watch on credit scores
With the number of Americans expected to use their credit cards for presents on the holidays, representatives from FreeCreditScore.com encouraged consumers to also be cautious of identity thieves while also keeping an eye on their own credit score.

"Understanding how shopping behavior can affect credit scores during the holiday season leads to better buying decisions," said Ken Chaplin, senior vice president of marketing for freecreditscore.com. "We offer a variety of articles and tools on freecreditscore.com that help educate people about credit information, which can help holiday shoppers stay on the financial 'nice' list this year."