FICO Scores

FICO Scores
John Meeks
Federal Deposit Insurance Corporation
What is your most valuable asset?
Frank Abagnale of Catch Me if You
Can fame once remarked that if you
don t own a house it is most likely your
credit score!
The Cost of Lower Credit Scores
$250K 30 yr fixed mortgage as of 5/10/2011
FICO Range
760-850
700-759
680-699
660-679
640-659
620-639
APR% Mo. Paymt Life of loan cost
4.36
$1,256
0
4.58
$1,279
$11,880
4.76
$1,305
$21,240
4.97
$1,338
$33,120
5.40
$1,404
$56,880
5.94
$1,491
$88,200
What is a FICO Score?
Ø  A measure of risk in lending
Ø  Developed by the Fair Isaac and Co.
Ø  The three major credit reporting
agencies have their own names:
Equifax = BEACON Score
Experian = Experian/Fair Isaac
TransUnion = EMPIRICA
Score Range
FICO scoring ranges from 300 to
850.
(VantageScore was developed
by the three major credit
reporting agencies to provide
consistency in scoring and it
scores from 501 to 990.)
FICO Score Distribution – skewed to
high end of the scale
FICO Score Distribution – skewed to
high end of the scale
The average score is 687 but the
median score is 723 – half the
population have a 723 or better.
Demographic Differences
Age
Demographic Differences
Race
Missouri Dept of Insurance study
Comparing credit scores by zip code found
minority neighborhoods averaged scores
in 17th percentile (about 550) while nonminority neighborhoods averaged in 57th
percentile (about 700).
Texas Department of Insurance study
African-Americans and Hispanics made up
60% of worst scores and only 10% of best
scores.
Lower scores (or no score) mean
fewer credit opportunities and more
dependence on predatory lenders!
Delinquency Rates
Credit Score exist because they accurately predict
delinquency rates
Delinquency Rate by FICO Score
Range:
300-499
87%
500-549
71%
550-599
51%
600-649
31%
650-699
15%
700-749
5%
750-799
2%
800-850
1%
Delinquency Rate by FICO Score
Range:
300-499
87%
500-549
71%
550-599
51%
600-649
31%
650-699
15%
700-749 (723 median)
5%
750-799
2%
800-850
1%
FICO Factors Weighting
FICO Factors Weighting
Payment History – 35%
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Account payment information
Bankruptcy, judgments, suits, collections
activity
Severity of delinquency
Amount past due or in collection
Recency of past due items
Number of past due items
Number of accounts paid as agreed
FICO Factors Weighting
Amounts Owed – 30%
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Amounts owing on accounts
Amounts owed on specific account types
Number of accounts with balances
Proportion of credit lines used
Proportion of installment loan amounts still
owning
FICO Factors Weighting
Length of Credit History – 15%
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Time since accounts opened
Time since accounts opened by account
type
Time since account activity
FICO Factors Weighting
Type of Credit Used – 10%
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Number of (presence, prevalence and
recent information on) various account
types – credit card, retail, installment,
mortage, consumer finance
FICO Factors Weighting
New Credit – 10%
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Number and proportion of recently opened
accounts, by account type
Number and time of recent credit inquiries
Time since recent account openings, by
account types
Re-establishment of positive credit history
following past payment problems
Everyone is different
The importance of any factor depends on the
overall information in your credit report.
For some people, a given factor may be more
important than for someone else with a different
credit history. In addition, as the information in
your credit report changes, so does the
importance of any factor in determining your
FICO score. Thus, it's impossible to say exactly
how important any single factor is in determining
your score - even the levels of importance shown
here are for the general population, and will be
different for different credit profiles. What's
important is the mix of information, which varies
from person to person, and for any one person
over time.
Bad Credit Data – Credit Score
Points Deduction
If you are a:
680
780
Maxed out credit card
10-30
25-45
30-day late payment
60-80
90-110
Debt Settlement
45-65
105-125
Foreclosure
85-105
140-160
Bankruptcy
130-150
220-240
FICO 08 Scoring Changes
(not all lenders have adopted the new
model)
Minor one-time delinquencies ignored
Small (under $100) collection actions ignored
Delinquencies more than 2 years old stressed less
High credit utilization a greater factor
Credit piggybackers weeded out – authorized users
on account only to inflate their credit score
Tips
Best way to get and keep good credit scores is
to pay your bills on time.
Have a variety of credit types, but don t get credit
that will be abused.
Keep your ratio of credit availability to credit use at
about 35%.
Check your credit reports every year –
www.annualcreditreport.com
Thank you
John Meeks
919-787-8727 x4915
jmeeks@fdic.gov