The Basics of The FICO Score Credit Rating
More and more people are giving greater importance to their FICO score credit rating. Since credit has become an all-important part of managing ones finances, having a good credit rating is a must in order for people to obtain credit from the financial institutions. Therefore, it is very important that one should understand how to look at personal credit reports and how one’s credit rating can affect financial institutions to approve credit.
When people use credit, they are trying to borrow money from a financial institution with the promise to pay it back within a specified period. Before such institutions can allow people to borrow such money, it has to be sure that they have the capability of paying it back. The FICO score credit rating is what the financial institutions usually try to look at for this. The FICO score credit rating is simply a statistical means of determining just how likely a person may be able to pay back the money borrowed.
In order to obtain the FICO score credit rating values, there are different credit bureaus that issue these FICO score credit ratings. Although the credit bureaus may use different evaluation systems to assess a persons credit worthiness, they base it on the program that was developed by Fair Isaac Corporation (FICO) in order to calculate credit scores based on certain factors. The primary factors that are used to assess an individual’s FICO score credit rating are the following:
Credit payment history The amount of current debts Length of credit history in terms of time Types of credit used The frequency of new credit applications
The three major US credit bureaus, Equifax, Trans Union, and Experian, may issue differing FICO scores for one person, even though the credit scores are calculated based on the same credit report information. That is why it is common for people to have three different FICO score credit rating values coming from the three major credit bureaus. If you wish to borrow money from a bank, for example, banks try to take your credit reports from the three credit bureaus to assess your FICO score credit rating. They then usually make an average or just take the middle rating and base their assessment of your credit worthiness on that said value.
When credit bureaus calculate your FICO score credit rating based on the factors mentioned above, they are building up a credit report that will be used in order to assess your credit worthiness every time you would need to avail of some type of credit. Everything that goes on associated with the money you borrowed is usually reflected on your credit report. That means if you defaulted on one of your loans, other financial institutions may be able to know about it on your credit report and it may tend to lower your FICO score, making it harder for you to borrow the next time since creditors will find you as a risk.
One must understand that financial institutions are in a business of lending money. They are always concerned on how they will be able to get their money back. What you borrow from them is their investment that they believe would be their gain if you pay them back. Financial institutions need the assurance that they get back their investments, in this case, the money that they let you borrow. They need to assess their chances of getting back what they lend to you. Hence the requirements for your FICO score credit rating.