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Ask FICO any credit-related question you don't see addressed on the Frequently Asked Questions page or elsewhere on this web site. We'll select the most interesting questions and post the answers to this page.

Closing credit card accounts

Dear Elisha,

No, it won't. In all likelihood, closing a revolving credit account either will not affect your FICO^® Score or it will cause your score to drop.

The FICO^® Score uses different information from your credit report to evaluate your credit risk. In some cases, closing an account will not change that information and so won't impact your score. For example, any delinquency information about your account will still be evaluated by the score whether the account is reported as open or closed.

On the other hand, closing a card account may cause your FICO^® Score to drop if the closure results in a higher utilization rate for your remaining card accounts. Your utilization rate is calculated by dividing the sum of all your debt on credit cards by the sum of your credit limits for those accounts. That rate is used in calculating your score. It is one of the factors included in the score's assessment of your "amounts owed," a part of the scoring formula that generally accounts for about 30 percent of a typical person's score.

For that reason you are less likely to change your FICO^® Score when you close a credit card if you habitually keep your balances low on credit cards.

Sincerely,

FICO Team

Score impact from foreclosure, short sale or deed-in-lieu

Dear Maria and Michelle,

The impact from any mortgage delinquency and the recovery time needed will depend upon the individual's credit profile. See the chart below for examples involving three consumers.

The first chart shows the impact on their score from different levels of delinquency. The second chart shows how long it will likely take to regain their original score after the delinquency has been resolved, assuming the person consistently pays all bills on time, keeps credit card balances low, and opens new credit only when really needed.

As you can see, some general principles are in play here:

• The magnitude of an event's impact to your FICO^® Score strongly depends on what your score is initially.
• Foreclosures, short sales, deeds-in-lieu and loan settlements all have similar impacts to the score.
• In general, the higher your starting score, the longer it takes for your score to fully recover.
• For more severe delinquencies, people with good FICO^® Scores normally won't fully recover to their original score until the credit reporting agency has removed the delinquency from their credit report, usually after seven years have passed, assuming they continue to pay all other obligations as agreed. Exceptions to the seven year rule are Chapter 7 bankruptcies which can remain on your credit report for ten years, and unpaid tax liens which can remain on your credit report indefinitely.

Sincerely,

FICO Team

Credit counseling and FICO^® Scores

Dear Patty,

When a lender learns that you are working with a credit counseling organization, it may note this in the credit information it sends to credit counseling agencies. This can result in the addition of a consumer/debt counseling code to your credit record. Such a code is not considered negatively by the FICO^® Score. However other information about your loans and other debts are still considered in the calculation of your score, including any late payments reported for these accounts.

Sincerely,

FICO Team

Stopping using credit

Dear George,

The most useful information for determining a person's credit risk is recent credit activity. When you stop using credit entirely either voluntarily or because, for example, you become unavailable by traveling overseas for an extended period, no new credit activity will appear on your credit report. Over time, if lenders stop reporting information about your accounts to the credit reporting agencies, you will no longer qualify for a FICO^® Score due to insufficient information in your credit report.

In order to produce a FICO^® Score, your credit report needs to meet three requirements:

• Have at least one account that is six months old or older;
• Have at least one account that has been updated by the creditor within the previous six months and which does not contain information that you are disputing;
• Have no "deceased" indicator associated with any of your accounts.

Sincerely,

FICO Team

Student loan delinquency

Dear Jodi,

In general, delinquencies and defaults on student loans can lower your FICO^® Score as much as would delinquencies and defaults on other types of loans. When one or more delinquencies are present on your credit report, the score considers the recency, severity, and frequency of the delinquent information, and the amount owed on the delinquent account(s).

If you unfortunately have fallen behind on your loan payments, the best way to help your score is to get current again with your payments and also pay your other bills on time. As that positive payment information is added to your credit report, your score should slowly improve.

Sincerely,

FICO Team

Buying a new home

Dear Samantha,

The recession has caused lenders to become more diligent with their lending practices, and many people are finding it harder to qualify for home loans. Your FICO^® Scores will play an important role in your getting a good loan. Based on our experience, most lenders view a FICO^® Score of 756 as good to excellent. About 37 percent of consumers nationwide have FICO^® Scores between 750-850. The full range for FICO^® Scores is 300-850.

It's very likely that your mortgage lender is going to check all three of your FICO^® Scores, one from each of the national credit reporting agencies. To better understand how a lender is evaluating your risk, you can ask the lender what score would qualify you for its best rates. You can check your own FICO^® Scores at www.myFICO.com. Additionally, a chart on that website shows you the mortgage rates that lenders are currently offering borrowers who have FICO^® Scores similar to yours.

Sincerely,

FICO Team

Tighter lending practices in auto sales

Dear Luis,

If your FICO^® Score hasn't changed and you are offering to put more money down, then it's possible that the auto lender used by the dealer has tightened its lending practices. Auto loans, credit cards and home equity lines of credit are just a few areas where the recession has made credit increasingly harder to come by. Today, we're seeing a big movement among lenders toward accepting only safer, lower-risk loans.

As the economy begins to turn around, credit should become more available. In the meantime, you might consider saving more money toward your eventual down payment – this can really lower your monthly payments. Also continue to keep your credit healthy by paying all of your bills on time, keeping your credit card balances low, and seeking new credit only when you really need it. If you need a new car sooner, you might check with other lenders such as a bank or credit union.

Sincerely,

FICO Team

Marriage and credit scores

Dear Ross,

Congratulations on your recent marriage. Here are some important facts you should know about FICO^® Scores now that you are married:

• You and your wife both have individual credit reports and FICO^® Scores. You do not have a joint credit report or score.
• When you apply jointly for credit and state your combined income, lenders will usually look at both of your FICO^® Scores when evaluating your loan application.
• Your payment history on joint accounts, such as credit cards and co-signed loans, will be considered in each spouse's score.

If you have a low FICO^® Score and your wife has a good one, you don't get to use hers when applying for credit – unless you are applying jointly. Even if your wife's good score would qualify her for a loan with a good interest rate, your low score may mean that, as a couple, you would only qualify at a poor interest rate. If your score is very low, the two of you may not qualify at all.

If your wife has a good score, she is already demonstrating the financial habits that you need to work on. These include always paying your bills on time, keeping the balances on your credit cards at a reasonable level, and only applying for credit when you really need it.

Sincerely,

FICO Team

Surviving a financial setback

Dear Cassandra,

There are no set guidelines to help you decide which accounts to pay first. However we can help you understand how your FICO^® Score is going to respond to different actions you take.

Utility bills – Although utility bills such as phone, gas and water aren't listed on your credit report, you shouldn't neglect them. If you skip utility payments, the utility companies may submit these unpaid accounts to collection companies which in turn can report them to the credit reporting agencies. Accounts in collection are considered very negatively by your FICO^® Score.

Credit cards – Here are two strategies for managing your credit cards when you can't afford to pay off your balances each month:

1. Pay at least the minimum due on each of your cards.
2. Reach out to your creditors if you simply can't meet your obligations. There is a good chance they will work with you to help avoid a default on your account. A reported charge-off, court judgment or collection on your credit report is treated very negatively by your FICO^® Score.

Non-credit obligations – You may have other debts that don't show up on your credit report. For example, if you owe your mechanic for work he did on your car, don't ignore his invoices. If he decides to take you to small claims court and the judge rules in his favor, a judgment for this debt can be added to your credit report. Just the presence of such a judgment can significantly hurt your FICO^® Score long after it's been paid. Instead, call the person you owe money to and try to work something out. He'll feel that you're trying to make good even if it takes longer for him to get his full payment.

Sincerely,

FICO Team

College and credit

Dear Jill,

College students and other people with limited credit histories can benefit from opening a credit account but it's important to use it responsibly. Opening her first credit card can help your daughter establish her credit history and learn the basics of credit management. Here's some advice that might help:

• One card is sufficient – If she finds over time that her credit limit is too low, she shouldn't just open a new card. Instead, tell your daughter to call her credit card company and request a credit line increase. Before they grant her a line increase she may need to demonstrate responsible use of her card which is what you want to see, too.
• Be extra responsible – Always paying her credit card bill on time is the most important thing your daughter can do for her credit standing. Since your daughter has a short and limited credit history, just one late payment would hurt her credit status and several late payments would substantially set back her credit standing.
• Keep low balances – Your daughter may not need to focus on her FICO^® Score yet, but her credit standing will benefit if she establishes the habit of using only a small portion of her available credit. Having credit doesn't mean you have to use it all.

Sincerely,

FICO Team