The Truth About Your Credit Score (from an expert)

by Ron Haynes


I recently had the great pleasure and honor to conduct an email interview with Barry Paperno from My Fico. Barry is an expert in the field of credit scoring. My questions were selected from things I personally wondered about, as well as some questions I’ve been asked by readers in the past. Here is the interview in its entirety.

1. What EXACTLY is a “credit score?”
A credit score is a number that summarizes your credit risk based on a snapshot of your credit report as of a particular point in time. The credit score that matters is the “FICO” credit score, developed by Fair Isaac Corporation and most commonly used by lenders, which uses a range of 300-850 with the higher the score, the lower the risk.

2. What are the components of a credit score? (what information is evaluated and how is that information weighted?)
The five main categories of information that FICO scores evaluate, followed by their estimated weights, are:

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • New credit (10%)
  • Types of credit used (10%)

3. Are all credit scores the same?
No – and it’s important consumers know there is a difference. While all credit scores set out to predict future credit risk, there are different companies developing credit scores, with each producing their own proprietary algorithms and different score ranges. FICO scores are the most widely used, with 90 of the top 100 financial institutions, the 25 largest credit card issuers, and the 25 largest auto lenders using them in their lending decisions. Consumers can purchase their FICO scores at My Fico.

4. Do different lenders score things differently (mortgage lenders vs. car loan lenders)?
Lenders don’t determine how credit is scored. Lenders decide how credit scores, such as the FICO score, are used in the loan process. For a lender, how scores are used typically depends on: 1) the credit products being offered; and 2) the amount of financial risk the lender is willing to assume.

5. How can I make sure my credit score isn’t damaged?
Frequently checking your credit report and score is the best way to protect yourself from inaccurate or incomplete credit information being reported about you by the credit bureaus. Credit monitoring services, such as Score Watch from My Fico, are convenient ways to monitor your credit report and avoid mistakes that could affect your credit score.

6. What is a good credit score? Above 650, 700, 750?
That’s hard to say because most lenders differ in their lending strategies. What one lender deems to be a good score (indicating low risk) could be seen as too risky by another lender. To get an idea of what scores are considered good by mortgage and auto lenders, the My Fico home page features a table that matches FICO scores with the loan rates currently being offered by lenders.

7. I’ve heard that too many inquiries cause your score to go down, is this true?
Yes, but only slightly and sometimes not at all. Inquiries resulting from applications for credit will usually have some effect on a FICO credit score. They are one of several “New Credit” factors that together make up roughly 10% of a person’s score. When you shop among several lenders for the best rate on a mortgage or auto loan, the scoring formula counts all their inquiries that fall in a 45-day period as just one inquiry when determining your score.

8. Does checking my own credit affect my credit score?
Not at all. In fact, frequently checking your own credit report and credit score is a wise decision, since maintaining accurate credit reports is one of the best ways to manage your credit score.

9. Can my credit score affect whether I can rent an apartment or get a job?
Yes, it can in some instances. Many employers and landlords now use credit scores along with applications and other information to evaluate applicants.

10. Is my income considered in my credit score?
No. While most lenders will consider income in their credit decisions, income does not appear on your credit report and is not a factor in a credit score.

11. Does a long credit history help or hurt my credit score? If I close some accounts does it help or hurt?
The longer the history, the better it is for your score. The good news is that your closed accounts contribute as much to your length of history as your open accounts – as long as they’re still on your credit report. Closing an account will not help your FICO score and in some cases may actually hurt your score. An example of this is when you close a credit card account that’s recently been paid off. When you do this, you close off the available credit line (credit limit) associated with this account, which could raise your overall credit utilization percentage (balance-to-credit-limit ratio) and potentially lower your score.

12. Can a “credit repair expert” really help me improve my credit score?
Beware of so called “credit repair experts” who claim to be able to remove negative credit information from your credit report or improve your score overnight. Most will charge you for credit correction that you can easily and cheaply undertake on your own. To clean up credit report errors, it’s best to: 1) contact the company reporting the erroneous information; and 2) contact the credit bureau(s), following their instructions for disputing inaccurate information. If financial difficulties are causing your score problems, talk with a financial adviser or have a reputable credit counselor help you set up a payment plan to bring your payments up to date and start your score on an upward swing.

13. Does FICO determine whether I get a loan or not?
The FICO score is only one of a number of components that go into a lender’s decision. In addition to a FICO credit score, most lenders also consider income and employment history, while some also look at assets and debt-to-income ratio — along with other factors that help paint your overall credit picture.

14. How badly does a bankruptcy affect my credit score?
You can expect a bankruptcy to significantly lower your score. The amount the score drops mainly depends on what your score was before the drop. For example, after filing for bankruptcy someone with a previously high FICO score can expect to lose more than 100 points, while someone who already has a low score might not see that much of a drop. Also keep in mind that while Chapter 7 bankruptcies will remain on your credit report for up to ten years from the date filed and a completed Chapter 13 for up to seven years, your low score can begin to show improvement soon after filing. Substantial improvement can be achieved within a couple of years by demonstrating consistently responsible credit behavior.

15. I’ve heard that auto insurance companies are setting their rates based on credit scores. Is this true? If so, what advantage is it to them since my driving record isn’t on my credit score?
An insurance score is different from a FICO score and is calculated using a very different formula. A credit-based insurance score is a snapshot of a consumer’s insurance risk picture at a particular point in time based on information from the person’s credit report. Such credit information has been found to effectively predict the likelihood of future insurance claim filings. Insurers who use insurance scores use them along with motor vehicle records, loss history reports, and other information to underwrite new and renewal auto and homeowner insurance policies.

16. Does one late payment cause your score to go down? If so, by how much?
For FICO credit scores, your payment history makes up the largest (35%) of the five main categories of information that the scores evaluate. How much a single late payment affects your score will depend on your overall credit picture. For example, if you have a long credit history with no late payments, a single new late payment may not lower your score by as much as if you have a short history and some recent late payments.

17. If my credit card issuer arbitrarily decides to lower my limit, does this affect my credit score since my available credit declined?
Lowering your credit limit could hurt your score by raising your credit utilization percentage (balance-to-credit-limit ratio). For FICO scores, credit utilization is part of the Amounts Owed category of information, accounting for about 30% of your score. As an example, if your credit card limit is $1,000 and you owe $500 your utilization percentage is 50%. If this credit card limit is reduced to $500 and you still owe $500, your utilization percentage jumps to 100% — which can impact your score.

18. We’ve paid off all our debt (credit cards, autos, student loans) and want to buy a home in about a year. What should I do to improve my credit score and get a good rate on my mortgage?
Congratulations on paying off all of your debt! Going forward, it’s best to keep your credit cards open and keep them active by charging small amounts occasionally and paying the bills in full and on time. If you open any new credit accounts during the next year, do so only sparingly and make your payments on time without fail to avoid jeopardizing your mortgage approval.

19. I’ve never skipped out on anything, but I have been a week or two late on some payments in the past. Why do lenders look at my score and decide that I’m a risk for non-payment?
Even minor late payments can hurt your credit score. This is because, more than anything, lenders want to be assured of being paid on time. Research on predicting credit risk has shown that borrowers with recently late payments – even only minor ones — are more likely to be late in the future than borrowers who consistently pay on time.

20. Are there any resources I should read or websites I should visit to learn more about credit scoring?
The best (in my opinion) is Fair Isaac’s My Fico, which offers a variety of ways to learn more about FICO credit scoring with its: 1) Credit Education Center; 2) free down-loadable booklet, Understanding Your FICO Score, and 3) FICO Forums online user community.

21. Does my race or gender factor into my credit score?
No. FICO credit scores only consider credit-related information and do not factor in gender, race, color, religion, national origin, marital status or age. In fact, the Equal Credit Opportunity Act prohibits lenders from discriminating based on these types of information when granting credit.

22. I have a collection agency hounding me and threatening to damage my credit score. How should I handle them?
If you owe the debt, the collection agency can attempt to contact you using reasonable means and can report the debt to the credit bureaus as a collection account — which can impact your score. If possible, work out payment arrangements with the agency and proactively contact them if further problems arise. If you don’t owe the debt they’re trying to collect, then familiarize yourself with your consumer rights under the Fair Debt Collection Practice Act, which requires the agency to provide you with validation of the debt.

23. Does the number of open accounts make a difference on my score?
The number of accounts (both open and closed) you have on your credit report can make a slight difference in your FICO score; however, the scoring formula doesn’t distinguish between open and closed accounts when evaluating the number of accounts you have.

24. Does the type of accounts I have open make a difference (installment vs. revolving)?
Yes, slightly. It’s better for your credit score to have a positive history of both revolving and installment credit to show that you can handle different types of credit responsibilities. This piece of your credit history in included in a category of information – Types of Credit – that accounts for about 10% of your score.

Other questions:
- How long has Fair, Isaac, and Company been in business?
Now called Fair Isaac Corporation, the company is 52 years old.

- What is the brief history of how credit scoring began and has evolved?
Back in the early days, 1950s and 1960s, credit scoring started out with the assigning of numerical scores to credit applications in order to automate and speed up the credit approval process. The first FICO credit scores were introduced in 1989 and used mostly by credit card issuers who wanted a faster and better way to analyze the credit reports of their applicants. The mortgage industry adopted FICO scores in the mid-1990s, which is about the time credit scoring first came to the attention of the U.S. public. FICO credit scores were first made available to consumers in 2001 from Fair Isaac and Equifax.

- How did the company decide on the range (300 to 850) to use? (it does seem odd)
The range of 300-850 is a registered trademark of Fair Isaac Corporation. It was arbitrarily chosen to uniquely identify Fair Isaac’s FICO credit scoring products and services, and to distinguish them from credit scoring products and services offered by other companies.

- What is your background? How does someone become an expert on credit scoring?
Prior to joining Fair Isaac in 1995, I served in the credit bureau, retail credit and bankcard industries dating back to the 1970s. For most of us, becoming an “expert” in credit scoring unfortunately requires some time spent at the “school of hard knocks.” For those more fortunate, the best place I know for information on credit scoring is My Fico, where you can learn everything you need to know about FICO credit scoring.

- What occupational opportunities are there in this field?
The field is often called predictive analytics, and Fair Isaac itself is an applied math company. So the unique jobs in this field often require strong ability in mathematics, statistics or computer programming. Supporting those people are all the usual company functions: sales, marketing, human resources, information technology, and so on. You can see the current career opportunities at Fair Isaac anytime at Fair Isaac’s careers and opportunities page.


I’d like to thank Barry for answering these questions and encourage everyone to maintain their credit by using tools such as My Fico.

See How Lenders See Your FICO Score

[tags]credit, score, fico, scores, lenders, scoring, fair, history, report, accounts, debt, insurance, isaac, payment, payments, risk[/tags]

About the author

Ron Haynes has written 988 articles on The Wisdom Journal.


The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.