High FICO score doesn’t always mean perfect behavior

Friday, October 26th, 2012

myFICO® revealed some habits and behaviors of individuals with FICO scores above 785.

About a quarter of all people with credit scores are considered “high achievers” and tend to have similar credit habits regardless of background or life experience.

Some of these habits are quite predictable. The individuals with high score:

– keep low revolving balances relative to their available credit;

– don’t max out their credit cards;

– consistently make payments on time.

You may think that high achievers are debt-free and you will be wrong. They have an average of seven credit cards, including open and closed accounts, and carry balances on an average of four credit cards or loans.

Nevertheless, they tend not to have an account past due. The majority of high achievers have no missed payments on their credit report. And those who do have, their last missed payment happened years ago.

The FICO score is used by almost all lenders to estimate creditworthiness of a borrower. The credit score can affect how much money a lender will offer and at what terms. Higher credit scores mean borrowers may save thousands of dollars over the life of a loan.

Because 35% of a person’s FICO score is payment history, managing credit responsibly over time plays a large part towards improving person’s credit score. This implies paying at least the minimum amount on all credit cards every month.

Missing payments will lower a person’s credit score, but if that happens, establishing or re-establishing a good record by making payments on time will generally improve the score.

By law, most negative information, and missed payments as well, is removed from credit reports after seven years. This does not apply to tax liens or Chapter 7 bankruptcy. Statistic shows that about 1 in 100 high achievers had a collection on their credit report, and about 1 in 9,000 had a tax lien or bankruptcy.

While people with a high FICO score are not perfect, their continual responsible financial behavior usually pays off over time. Today to know that we all have a chance to achieve high credit score gives comfort. The lesson from individuals with high FICO score is that it’s never too late to rebuild and lead the score.

According to FICO, its high achievers usually have long, well-established credit histories and rarely open new accounts. Their oldest credit account is 25 years old, on average, and their most recent credit account more than two years (28 months) old (an average credit account is 11 years old). Their balances are often low and they use only an average of 7 percent of their available revolving credit.

FICO takes into account both positive and negative credit report information, notably:

  1. Payment history (35%)
  2. Amounts owed (30%)
  3. Length of credit history (15%)
  4. New credit (10%)
  5. Types of credit used (10%)

The FICO score does not take into account such attributes as race, gender, age, marital status, salary, employment history or address.

Because a high FICO score is typically achieved over time and takes into consideration dozens of variables, there are no quick score fixes. Achieving good credit is a long-distance event, not a sprint.

Practicing good credit behavior continuously over the time and regularly checking your credit report for errors can be effective for achieving a high credit score, which can lead to better loan terms and lower interest rates.

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