Understanding the FICO credit score and what it means

What is the FICO credit score?

FICO is a credit scoring method developed by Fair Isaac & Co. A credit score is formula that produces a number (your credit score) that tries to determine the likelihood that you will repay the credit extended to you.

Essentially a credit score boils your credit history down to a single, solitary number!

FICO started their scoring work towards the end of the 1950's and it is now widely used to gauge credit worthiness. All of the major credit reporting agencies: Equifax, Experian and Transunion, use FICO in their credit evaluations.

Each FICO score different between the 3 major credit reporting agencies because each agency probably has different information about you. When you don't pay a bill, a company may report you to Equifax, but not Transunion! This will lower your Equifax score, but not your Transunion score. I know it's crazy, isn't it?!

So you actually have 3 credit scores!

Fico credit scores are widely used in the mortgage lending business when a potential buyer applies for a home mortgage.

What areas of your credit history is your credit score based on?

  • Late payments
  • Length of your credit history
  • The ratio of credit used to the amount of credit available
  • How long you lived in your current residence
  • Your employment history
  • Any other relevant credit history, such as credit card chargebacks, bankruptcy and accounts sent to collection

What are good and bad credit scores?

If your credit score is above 680, you are considered a "prime borrower". Companies will extend credit with little doubt that you could not repay the loan. You will qualify for a good APR on a loan or credit card.

If your credit score is below 680, you are considered "sub-prime" and your rates will be higher than a prime borrower rate.

If your credit score is below 550 you will most likely have problems getting a loan at all.

You can improve your credit score by paying attention to the major areas that affect how your credit score is calculated. I have a page on tips about how to increase your credit score.

Finding out what your is on your credit report is one of the most important things you can do, because even the smallest mistake can cost you big money. When you get a loan, one small error can mean thousands of dollars in cost to you! There are 3 major credit reporting agencies. It is important to check with each company each year to make sure that an error isn't costing you big time! I save myself the time and expense of ordering from each of the 3 bureaus and get your reports all at once for less at Credit Reporting.

Credit report from all 3 bureaus - Order a 3-bureau credit report from CreditReporting.com for $34.90. See what's in your report today to insure 100% accuracy tomorrow

understanding fico credit score

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