Your credit score is a number based on the information in your credit file that shows how likely you are to pay a loan back on time. The higher your score, the less risk you represent. The credit score that lenders use is called a FICO® score. Your FICO score helps a lender determine whether you qualify for a loan and what interest rate you’ll pay.  A credit report show the information you have on file at one or all of the three major credit reporting agencies – Equifax, Experian and TransUnion. Each of these reporting agencies (also known as credit bureaus) maintain their information separately, so the data you have on file may differ between them.  FICO scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below.      The percentages in the chart reflect how important each of the categories is in determining your score.  A FICO score takes into consideration all these categories of information, not just one or two. The importance of any factor depends on the overall information in your credit report.

IMPROVING YOUR FICO® SCORE Pay your bills on time. If you have missed payments, get current and stay current. Keep balances low on credit cards and other “revolving credit”- below 33%. . Pay off debt rather than moving it around. Don’t close unused credit cards as a short-term strategy to raise your score and don’t open a number of new credit cards that you don’t need, just to increase your available credit. Do rate shopping for a given loan within a focused period of time – FICO scores distinguish between a search for a single loan and a search for many new credit lines based on length between inquiries and the requestor. The score counts multiple auto or mortgage inquiries in any 14-day period as just one inquiry. In addition, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. However, multiple unrelated inquiries may negatively affect your score. Re-establish your credit history if you have had problems – open new accounts and pay them off on time to raise your score in the long term. Have credit cards but manage them responsibly. COMMON MYTHS ABOUT CREDIT SCORES In order to improve my credit, I should pay off my credit cards and close them.  False. Although high balances can negatively affect your credit score, a zero balance provides less information to FICO (Fair, Isaac and Co.) about one’s ability to manage debt than a small balance does. In addition, it is important to keep credit lines open because credit scores take into account both the age of your oldest account and the average age of all your accounts. A longer history is actually beneficial to your credit score.  Co-Signing for a loan or credit card of another person will not affect my credit. False. If you co-sign for someone else and they default on their loan or make late payments, your credit will be affected as if it was your personal loan or credit card. Co-Signing for a friend or family member is a very serious commitment and ultimately a risk to your personal credit therefore the decision should not be made lightly. I’ve got a lot of credit cards but I pay them all on time so my credit should be good. True and False. Although payment history carries the highest percentage of importance, both amounts owed and number of accounts can affect you negatively. You can have several credit cards and still have good credit but FICO recommends keeping 2-3 credit cards – one store card and two bank cards. Also, keep the balances below 33% of the credit line on each. I paid my credit card bill a couple of days late – my credit score is going to drop! False. If you truly only paid your bill a couple of days late, the only penalty you will see if from your credit card company. Late payments aren’t reported to the credit bureaus until they are 30 days late or more. Many credit card companies will raise promotional interest rates or charge fees for late payments but will only report a late payment when it is more than 30 days late.   3 KEYS TO MAINTAIN “GOOD” CREDIT Pay bills on time. Keep balances low on credit cards and other revolving credit products. Apply for and open new credit accounts only as needed.               Contact Joe Varney at Chicago Bancorp for more information. joev@chicagobancorp.com or call        312-738-6347