Los Angeles Bankruptcy Lawyer | Bouldoukian Law Firm


Firm Updates

Credit Bureaus, FICO Scores, and Star Wars.

The average American puts a lot of value in their credit scores. Your credit score can determine so much more than just getting approved for a loan. It sets a score for how responsible you are with your money. Your ability to borrow money comes down to a three-digit number ranging from 350 to 850. The numbers are supposed to give your a rating of how responsible you are with the money you borrow from the bank. So, staying on top of your credit score is important, and should be a part of your yearly routine!

The federal government suggests getting a copy of your credit report from both agencies at least once a year, to check that your personal and financial information is up to date, and to ensure that you haven't been a victim of identity theft. This is important because this is the information your creditors use to get a hold of you. It is also a good way to see if there are judgment against you that you forgot about.

How Often are Credit Reports Updated?

It used to be the case that credit report were updated every quarter. Sometimes you had to wait two or three months to see any change (positive or negative) on your credit report. There are so many tool out there now to keep up with your credit score, it is much easier than pulling a full report each time. In the age of information technologies, credit report can be updated as soon as 30 days and scores are available in seconds. But achieve that score is a whole other matter altogether. How is your credit score calculated?

Credit Scores: the FICO FORMULA

FICO scores were introduced by the Fair Isaac Corp. in 1989, and they are the most widely known credit score. A FICO score is a three-digit number that lenders and credit card companies use to predict how likely you are to repay them if they grant you credit. The score is also used to set the interest rate you’ll pay. The good people of FICO use a proprietary formula to gauge your creditworthiness. FICO won’t give out the information about how the scores are credited. The formula is applied to data in your credit reports at credit reporting agencies like Equifax, Experian and TransUnion. Often the credit bureaus have slightly different data from one another, so your score may vary for each bureau. FICO reports and credit reports aren’t exactly the same thing, but they do give you similar information. Compare it to the Jedi Council from Star Wars. Now, most people would assume that the credit reporting agencies mirror the Empire, but that isn’t a fair comparison for either party. So let’s think of these companies as Jedi Masters that make up the Jedi Council. They decide the scores to determine whether you are worthy to borrow more money or get a credit card to buy a new light saber. Each council member is going to have their own score for you because of the data they collect. But FICO is like the Yoda of the credit reporting agencies, because although he isn’t in charge, everyone pretty much follows his lead (arguably).


What matters most for FICO scores

While FICO doesn’t reveal precisely how scores are calculated, it gives useful guidelines about what factors matter for scores:

  • Payment history (35% of your score): This concerns whether you’ve paid on time. A late payment can ding your score, although 30 days late isn’t as bad as 60, etc. A bankruptcy filing or accounts in collections could also have an impact on your score.

  • Amount of debt relative to credit limits (30%): This is how much of your available credit you are using. Make it a rule to keep your balance below 30% on all of your cards at all times. Keeping the credit use low is a great way to rebuild post-filing!

  • Age of credit (15%): This refers to how long you’ve had credit and the average age of your credit accounts.

  • Recent applications for credit (10%): A so-called “hard inquiry” when you apply for new credit can nick your score for up to six months.

  • Whether you have more than one type of credit (10%): Having both installment loans (those with level payments, like a car loan or mortgage) and revolving credit (like a credit card) can help your score.



As you can see, paying on time and keeping balances low account for about two-thirds of your score. Whether you agree with the formula or not, keeping the FICO scoring factors in mind will keep you in good financial health. We may not completely understand how the credit reporting “council” determines scoring, we do have to take them into account. Rebuilding your credit after a bankruptcy filing can be much more manageable, once you know what goes into your score. At the end of the day, you are pressing the financial reset button so you need to be prepared. Call our office today for more information.