Credit Issues for Consumers

What is your credit score?

FICO:  stands for the Fair Isaac Corporation.  It is the company that created the most widely used credit score formula called FICO.  It uses 22 pieces of data collected from 3 major credit bureaus (Equifax, Experian, TransUnion).

Range of Credit Scores:
300 Lowest - 850 Highest

How are the factors weighted?
35% Payment History
15% Length of Credit History
10% New Credit
10% Types of Credit Used
30% Debt

*Income is NOT a factor in your FICO score but it is likely a factor in determining your creditworthiness.

Negative factors remain in your credit report for 7 years.

The use of credit scores has expanded greatly since their initial purpose.  Most credit reports contain errors, so be careful!  In addition to lending, credit scores are now being used for apartments, housing, insurance quotes, background checks and job interviews.


1.   Monitor your credit reports and credit score from each of the 3 major credit bureaus at least once per year to review for errors and to make corrections.  You can get a free credit report once per year by going to

2.   Pay All Your Bills on Time.  This is probably the single most significant factor that can bring down your credit score.

3.   Think twice before closing accounts.  Length of credit history counts significantly in your score.  It may be best to stop using a credit line, pay it off, but keep it open.

4.   Limit the Number of Credit Card Applications.  Inquiries and applications can lower your credit score.  Don't apply for it unless you need it.

5.   Keep Balances Low.  If balances reflect a high percentage of the credit line, that can reduce your credit score.

6.   Good Credit Factors and Good Financial Planning are NOT always the same.  For example it is generally better for consumers to avoid debt and pay it off as quickly as possible and close unneeded accounts.  However, it is generally better for your credit score to keep several credit balances at about 1/3 of your available credit line and pay it off gradually.

7.   Minimum Payments are NOT your friend.  When determining affordability and the REAL cost of what you are purchasing, one must consider interest.  Do NOT rely on the suggested minimum payment to determine your budget and how much to pay.  This can stretch your debt out by years and add thousands of dollars to your debt load.

8.   Savings v. Borrowing.  It is of course better to save for big purchases if possible rather than borrow for it because you will significantly increase your debt load by borrowing.  However, one rule of thumb to prevent getting buried in debt is not to buy or borrow anything that you couldn't pay off within 4 months.  (Housing, Student Loans and Car aside).