Your Credit Score Demystified!

Bankrate has an interview with Craig Watts, public affairs manager at Fair Isaac Corp., the creator of the popular FICO credit score. Craig talks about credit myths and strategies for people who are looking to raise their credit scores. Nothing terribly ground-breaking, but we know our readers tend to obsess over their credit scores, so it’s good to get some info straight from the horse’s mouth.

One interesting part of the interview delt with new “alternative” credit scores:

Something right around the corner and clearly here to stay are “alternative credit scores.” These are scores, such as the FICO Expansion score, that lenders can use to help assess the risk of a consumer who has had no credit relationships. It could be a teenager applying for credit for the first time, a recent immigrant, a spouse whose partner is gone for whatever reason and has never had credit in his or her own name. Now lenders are beginning to use alternative credit scores in larger and larger numbers. So, for consumers who are just starting out managing credit, the day may soon arrive when instead of filling out long applications and expecting high interest rates and low credit limits, consumers may be treated with the same speed and convenience as the rest of the people who already have an established credit history and a good credit rating.

Neat, we get a lot of complaints about this.

Credit Scores Demystified [Bankrate]

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  1. I’ve always wondered how Fair Isaac got its name. Who is Isaac, and why is he fair? Unfortunately, I discovered the truth is a bit more boring-the company is named after its co-founders, Bill Fair and Earl Isaac-but it was a groovy quandary while it lasted…

  2. QuantumRiff says:

    There was a big issue a year ago in my state, OR, about FICO.. The state mandates all drivers have liability coverage.. The state also oversees insurance companies to ensure they are being fair, and not discriminating against minorities, poor people, etc. Insurance companies have started running a credit score to determine the price of your insurance.. Statistically, Minorities, the poor, and imigrants have lower credit scores. Its apparently different than a normal credit score, a special one for auto insurance. State of Oregon Wanted to look into the scoring to ensure it was fair, and both the insurance companies and Fair-Isaac said, Sorry, trade secret, no looking for you… Understandably, many people are still awfully mad that the cost for a state mandated product (if you drive a car) is now based on a number that they don’t tell you how they came up with it..

  3. lawnmowerdeth says:

    I was shocked to notice my credit score dropped 70 points this month (I have a WaMu account that checks your score monthly for free), for no reason I can find.. Even ordered the free annual credit report, and found nothing out of the ordinary. No late payments anywhere. Any ideas? 70 points is a HUGE drop!

  4. geeniusatwrok says:

    Lawnmower: hard inquiries?

    Mine hasn’t budged in a year despite dropping my % of credit used by half and almost doubling my lines of credit. Meh. I wasn’t gonna buy a house anytime soon anyway.

  5. kamel5547 says:

    @lawnmowerdeth: Scores can drop for any reason due to the way the calculation is made. Your score per say is a snapshot at that exact moment and can easilyt vary by 50 points. Items that could have changed your score are higher balances/closing a line of credit (overall debt utilization is factored), new accounts (overall age of accounts is a factor), new inquiries (i.e. cell phone credit check etc.) will typically whack 50 or so points off for a while. Paying an old collections account will LOWER your credit also, as older items are given less weight until they eventually fall off the report all together.

  6. 160medic says:

    KAMEL5547 : I don’t know where you get your information but an inquiry does NOT “Whack 50 or so points” And the real reason that credit scores vary is because there are several different scoring models. Some are used for home lending some for auto lending and even revolving accounts use a different one. The score a real estate lender uses is usually a bit higher than one that a car dealer would pull. The reason is that there is a different risk involved with an auto loan.You could for instance have an accident with no insurance, hide the car when the repo man comes knocking,or run off to Mexico and sell it for a few bucks.The house will probably be there when the lender comes for it and good luck trying to move it to Mexico(they actually have pretty strict immigration laws.)

  7. lawnmowerdeth says:

    No new inquiries, but I did make a $1200 purchase on a credit card (which will be paid off when the bill is due).

  8. Noah_Bodie says:

    You can also talk to some of us credit freaks over at Fair Isaac in their discussion forums.

    http://www.myfico.com

    I’m one of the more “vocal and colorful” contributors.