DR 002: How to Improve Your FICO Score with Credit Expert Tom Quinn

Credit scores and reports are as confusing as they are important. Since 2007 when Dough Roller launched, I’ve fielded hundreds of questions about credit reports and scores. What I’ve learned is just how much misinformation is out there about how FICO and credit reports actually work.

So it was fitting for Episode 002 of the Dough Roller podcast to interview Tom Quinn. Tom is the credit expert at FICO, the creator of the credit scoring models used most by lenders.

In my interview with Tom, we cover a wide range of scoring issues, including what factors affect your FICO score, what you need to qualify for a score in the first place, and how you can improve your score.

If you don’t know your score or the factors that help and hurt your score, I encourage you to give myFICO’s Score Watch a try. It will show you the factors from your credit report that are most affecting your score. This information may help to put into better context Tom’s interview.

Things Covered in this Episode

• Buying a Home or Refinancing a Mortgage: We discuss the score you need to qualify for a mortgage and how your FICO score affects the mortgage rate you’ll receive.
• Buying a Car: You'll learn how your credit score can mean a difference of more than 10 percent on your auto loan interest rate.
• FICO vs. Credit Reporting Agencies: Tom explains the difference between FICO on the one hand and the three national credit reporting agencies on the other. He also describes how FICO works with each of the three, Experian, TransUnion, and Equifax.
• How to Get a FICO Score for the First Time: Tom discusses the three things you need to get a FICO score for the first time (one factor is you must be alive, so really there are only two!). He also talks about how you can get credit for the first time when you don't have an established FICO score, including becoming an authorized user on a credit card or applying for a secured credit card (which are treated the same as a traditional card for credit scoring purposes).
• Factors Affecting FICO Score: We discuss in detail each of the five main factors affecting credit scores. There were some definite surprises for me in what Tom had to say--
• Age of Credit File: FICO doesn't just look at how long a consumer has had a credit file. They also look at something called average time on file.
• Payment History: FICO considers the severity of the late payment (e.g., 30, 60, or 90 days late), the recency of the late payment, and the frequency of late payments. Tom also explains how long it takes for a late payment to come off of a credit report. We also learn whether installment loans or revolving lines are more likely to report a late payment before it's 30 days late.
• Amounts Owed: Also called credit utilization, this factor is the second most predictive factor driving the score. Tom explains why this factor is more relevant to revolving lines and why a utilization between 1 and 20 percent is best for those looking to maximize their FICO score.
• New Credit: Tom explains why shopping for a rate won't have a big affect on your credit score.
• Types of Credit Used: While not a significant factor, we look at how the various types of credit are factored into the equation.
• Age of Credit File: FICO doesn't just look at how long a consumer has had a credit file. They also look at something called average time on file.
• Payment History: FICO considers the severity of the late payment (e.g., 30, 60, or 90 days late), the recency of the late payment, and the frequency of late payments. Tom also explains how long it takes for a late payment to come off of a credit report. We also learn whether installment loans or revolving lines are more likely to report a late payment before it's 30 days late.
• Amounts Owed: Also called credit utilization, this factor is the second most predictive factor driving the score. Tom explains why this factor is more relevant to revolving lines and why a utilization between 1 and 20 percent is best for those looking to maximize their FICO score.
• New Credit: Tom explains why shopping for a rate won't have a big affect on your credit score.
• Types of Credit Used: While not a significant factor, we look at how the various types of credit are factored into the equation.
• Ways to Improve Credit: We discuss the best ways to improve your credit score.
• What should we avoid doing before getting a mortgage: Tom gives us some things to avoid if you plan to buy a home or refinance a mortgage soon.
• How to improve score fast: We also learn three things we can do if we are trying to improve our credit score quickly.
• Credit Myths: Finally, Tom debunks several myths when it comes to the FICO score.

Resources Mentioned in this Episode

• myFICO’s Score Watch
• myFICO Forum
• Your FICO score determines your interest rate when Refinancing myFICO Credit Help
• How much will your FICO score save you on your next car?
• AnnualCreditReport.com
• Credit Score vs. Credit Report
• How Credit Inquiries Affect Your FICO Credit Score
• How to Improve Your Credit Score
• What Credit Score do You Need to Buy a Home?
• How Late Payments Affect Your Credit Score