Do you fully understand how your credit score it calculated and reported? You probably know that you should always pay your bills on time, not max out credit cards, and keep up to date on your mortgage, but if you’re still a little shaky on how the rest of it works, you’re not alone. However, there’s a whole lot beyond the basics of credit score and sound financial practices that the vast majority of Americans have no clue about!

In part one of this blog, we covered 10 uncommon credit facts, and here are 10 more little known facts about credit, scores, and reporting:

1. How credit scoring came about – and what we did before
Credit scoring first took shape by the end of the 1970s, as most major banks and lenders used some kind of rudimentary credit scoring formula to aid their decisions whether to accept or deny applications for credit. Before that, most lending decisions were made not with data but based on reputation of the borrower, personal relationships, and other subjective factors, as lending was commonly conducted on a local level.

2. The origins – and prevalence – of FICO
The most widely used credit scoring model is called FICO (Fair Isaac Corporation), which looks for patterns of behavior from millions of consumers, and identifies risk factors, gauging who is likely to pay a debt – and who isn’t.

But many people don’t realize that FICO was created by an engineer Bill Fair and mathematician Earl Isaac, who founded their Fair Isaac firm in 1956 and developed our current FICO model in the mid-1980s. These days, FICO scores are used in 19 countries outside the U.S.

3. The mortgage industry helped boost FICO
Our system of credit scoring got a huge vote of confidence in 1995 when Fannie Mae and Freddie Mac, the two largest mortgage finance agencies in the U.S., starting recommending that lenders use FICO credit scores in their files, which went a long way to standardize and legitimize the credit scoring industry.

4. Young people struggle with credit far more than any other age group
Young people, especially, seem to struggle with their credit scores, as they first navigate the world of debt, budgeting, and finances. In fact, 85 percent of college students don’t even know their credit score, and only about half of all Millenials have ever reviewed a copy of their credit report. Additionally, 54 percent of young adults racked up debt on their credit cards that they were unable to pay off within the year, 44 percent missed payments on a credit card or loan, and 47 percent had an account sent to a collections agency.

5. Are you average?
Looking at the average adult American’s credit report, we find 13 credit accounts, including 9 credit cards and 4 installment loans. The average credit score in the nation was 695 as of 2015; up from modern-era lows of 687 in 2008 and 2009. (By the way, the average U.S. household with debt now has $15,762 in credit card balances and $130,922 in total debt.)

6. But most people don’t lie in the middle
But credit is also a tale of the financial haves and have-nots, as about 50 percent of Americans don’t have a single late payment on their credit reports, but close to 40 percent have been 60 days or more overdue in the past 7 years.

7. The state of credit in each state
The states with populace that have the highest average credit scores are Minnesota (707) and North Dakota (700.)

The lowest credit scores are generally in southern states like Mississippi (642), Arkansas (653), and Louisiana (650).

In fact, the Federal Reserve Bank recently conducted a study of credit use and availability around the country, and found that New Mexico, Texas, Oklahoma, Arkansas, Louisiana, Mississippi, Tennessee, Georgia, Alabama, South Carolina, Nevada, and Florida were the only states where over 40% of the population had subprime credit – generally considered below 660.

8. Credit and insurance are tied more than ever
Insurance companies are utilizing credit scores more and more, not for lending decisions but because of a distinct correlation they’ve found. Data shows that the higher a credit score a consumer has, the less likely they are to file an insurance claim. Conversely, consumer with lower credit scores file far more claims, costing the insurance companies more. So even though insurance is not a debt or loan, 90% of homeowners and auto insurers now use credit score in determining who to cover and what premiums to charge.

9. You’ll be shocked what else can hurt your credit! 
Most of us understand that paying our credit cards, car and student loans, and mortgages on time are key to keeping a good credit score, but you might be surprised what else can impact your score. Even overdue library books, unpaid parking tickets, unpaid toll charges, unpaid storage fees, and gym memberships you walked away from without paying can ding your credit. These items aren’t actually listed as credit accounts on your report, but if you fail to pay, the overdue and unpaid bill might get sent to a private collections agency, which will report on your credit and lower your score. Renting a car, starting home utilities, and ordering cable TV can also impact your score, as they show up as hard inquiries.

10.  Experian, TransUnion, and Equifax never make credit decisions
Most people don’t realize that the three major credit bureaus, Experian, TransUnion, and Equifax, don’t actually make decisions about new credit applications – ever! Instead, these bureaus collect comprehensive data on your credit and debt, and sell that data to banks, lenders, and retailers who will make those decisions.

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If you have any questions about your credit score, credit reporting, or applying for loans and debt, feel free to contact us!