There's a lot of worry going around about the FICO credit score. It can be like a sleeping giant you don't want to wake.
Carry too much debt, and you could wake the giant and see your score plummet. Never carry debt, and the giant won't like that either. Apply for too many credit cards at one time, like a balance transfer offer and a gas card, and the giant will grunt and roll over, dropping your credit score a bit in the process. Take out a car loan, and your credit score will almost certainly take another hit. We worry, all in the name of making our FICO credit score as high as humanly possible.
But the FICO score isn't the make-or-break number everyone thinks it is. Credit card issuers often make decisions based on two other scores: your application score and your revenue score. Today let's take a look at the application score.
- What it is: Your application score, quite simply, is a code that results from all the data you provide on your credit application. The application score determines whether you get your loan and what the terms are, such as your interest rate.
- Why you should care: Like going to a job interview, or meeting your partner's parents, you really want to make a good impression. When you fill out an application, you're meeting your credit card issuer for the first time. John Ulzheimer, a nationally recognized credit scoring expert and president of Ulzheimer Group LLC, says that credit card issuers often put more weight on the application score than the FICO score.
- Why you shouldn't care (too much): "There isn't much you can do to change your application score, frankly," says Ulzheimer. But there are things you can do to nudge it in the right direction when you fill out your application.
- How the application score is calculated: Wouldn't you like to know that? It's all very mysterious how these scores are calculated, because every credit card issuer comes up with its own method for creating an application score. (And as you'll see, knowing your score wouldn't do much good anyway.)
You don't have to be paranoid about it, but there are some items on the credit card application that are particularly important for lenders to see. If you're able to change some of those items, you could improve your application score.
How to improve your application score
"The rule of thumb is to not leave blank spaces," says Ulzheimer. "If you do that, the credit card issuer will penalize you as if you gave the least attractive answer. The best thing you can do is answer the application's questions as honestly as you can."
For instance, lenders like to see that you have a full-time job and the longer you've had it, the better. Ulzheimer also says that having a checking account and a savings account is important.
"They generally want to see that savings account so they know you have something to depend on if you lose your job," adds Ulzheimer.
In other words, the card issuer wants to know they might have a shot at getting paid back if you're unemployed.
What if you make a mistake on your application?
It may not be the end of the world…but don't tempt fate. Ulzheimer says that the computer systems that analyze credit card applications "understand" that applications sometimes have errors in them. Errors can include clever manipulations, fudged values or outright lies.
But don't lie, caution both Ulzheimer and Ted Connolly, a bankruptcy lawyer based in Boston and the author of "The Road Out of Debt."
"By making fraudulent statements," says Connolly, "you place yourself at risk of potential criminal penalties, needless aggravation, and embarrassment. Although I have rarely heard of somebody being prosecuted or sued based on false representations in a credit card application, an applicant is putting himself at risk that he or she could be sued for fraud. It's not worth this risk for the sake of a credit card."
And don't bother asking for your application score
It would be a reasonable request. After all, if you fail to get that dream credit card deal you were hoping for, you might want to know how you fared with your application score. But there is no law governing application scores, whereas with your credit score, you're entitled by law to get a free one from each credit card bureau every year (which you can do at AnnualCreditReport.com).
And even if you somehow got a hold of your application score, you wouldn't be able to make heads or tails out of it anyway, says Ulzheimer.
"Your application score might be an L or a Z, instead of the numbers we have for FICO. It might be a series of characters," Ulzheimer says. "These application scores are largely machine readable."
That's the irony. The reasons for wanting a credit card are often very personal, as is the information you reveal on your credit card application. But the application score itself is as impersonal as it gets. Yet, it may be the most important factor in getting you approved for the credit card you want. Something to keep in mind when you're filling out that online credit card application.
Next week: your revenue score and how it factors into getting approved for the best credit cards.