A lot of people are confused by credit. They don’t understand it; they don’t know how to use it, how to repair it, or even what it means. I’m hoping this article will remove some of the mystery from understanding your FICA credit score. To begin with, you should now that it is actually FICO credit score which stands for Fair Isaac Corporation which developed the model currently used to determine credit scores. One thing I was surprised to find out is that each of the three major credit reporting bureaus has their own version of a FICO score, so everyone has essentially 3 separate FICI scores. Equifax uses BEACON score, Experian has Experian/Fair Isaac Risk Model and TransUnion has EMPIRICA. There will be slight variation in each of these reports, but the point difference should be less than 75 points in my experience.
Although you’re allowed to get a copy of each of your credit report for free each year, this does not apply to your FICA credit score. Usually you have to pay a small fee to get a copy. If you apply for a loan from a bank, sometimes if you ask nice, they’ll give you a copy.
The FICA credit score is used by lenders to get a general sense of your credit worthiness. Your credit score will determine if you qualify for a loan and if you do qualify for a loan, what type of interest rate you will get. People with better credit get better loans.
This is a quick view of the FICA credit score:
Overall, your FICA credit score is based on:
A lot of people view credit reporting as a sort of mysterious process that they have no control over, but the exact opposite is true. Except for extreme cases like identity theft, you do have direct control over your credit score. You can directly affect your credit score either negatively or positively. All banks want to see when they are deciding if you are a good candidate for a loan is that you are a responsible user of credit. Do you keep your debt low and pay your bills on time, this is the main concern of lenders, and this is why this counts for 65% of your credit score. The other factors such as how long you’ve had credit, the types of credit you have available, and new credit are not as important to lenders. Don’t get me wrong, they’re still important, they count for 35% of your credit score, but on time bill paying and lower balances are the single most important aspect of your FICA credit score.
If you’re interested in improving your credit, I hope you’ll check out some other articles I have available on the subject. Credit is something that everyone should understand, because bad credit can end up costing you dearly. Bad credit may mean you can’t buy a home or a car. It also means you’ll pay more for any loan you do get which can end up costing you tens of thousands of dollars extra for a house versus someone with good credit and a better loan.
