The credit report FICO score has become a valuable tool for lenders in trying to find good borrowers. And for consumers who might require credit, the credit report score has also become an all-important means for them to be able to increase their likelihood of getting approved for different types of credit. No longer do they have to rely on a lender’s sometimes biased human judgment just to get a loan approval. And lenders on the other hand have only little to fear than usual of losing money on bad debts by making use of an effective means to choose only borrowers with good paying habits to whom they can lend their money.
When you want to avail of any type of credit – whether for a home mortgage, a credit card, or a car loan – money lenders would especially want to know how high a risk they are taking by loaning money to you. The credit report FICO score is what most lenders use in order to determine your credit risk. Actually, each individual has three FICO scores that are being considered by lenders. This is because each person has a credit report FICO score on each one for each of the three credit reporting agencies: Experian, TransUnion, and Equifax. The other reason why the three FICO scores may not be similar to each other is because each score is based on data that each credit reporting agency keeps on file about you.
During the course of one’s lifetime your credit report FICO score tend to change as well, depending on the different credit plans that you make. The changes that are reflected in your credit report FICO score would determine how attractive you are to lenders to make them loan your money to you. And it is not just one FICO score to consider. Your three FICO scores coming from the different credit reporting agencies would affect both how much and at what interest rates lenders will be bound to offer you at any given time. What they usually do (since one agency may have information on your credit history that the other may not yet have) is to take al three FICO scores and get the mean score in order to get a more accurate assessment. Taking all the necessary steps in order to improve your FICO scores can help increase your likelihood for credit approvals as well as in getting better and more attractive interest rates and terms from your lenders.
One of the best ways to improve your credit report FICO score is by making your credit history as clean and as problem-free as possible. Building up your credit history this way can all the more assure you that you get high FICO scores from the three credit reporting agencies. And the best way towards an immaculate credit history is by paying your debts on time. Each lender provides a certain timetable from which you might be obliged to follow. By sticking to their timetable in terms of credit payments, lenders would always see you as a good and dependable borrower. And when they file their good report about you to the credit reporting agencies, you can be assured of getting high marks for it. After all, its people like you who pay debts on schedule is what most lenders would love to have.
Different FICO score ranges would affect how lenders would see you when you try to apply for new credit. Score high on the FICO score ranges and you would be seen as a good borrower and would be more likely get approved in new credit. But how did the FICO score get to be such a deciding factor whether you get to be approved on new credit or not?
As you well know, the credit industry is in the business of lending people money. But doing so to just about anyone would likely hurt their rates of return, that is, the likelihood that their borrowers would pay back what they have borrowed and on time.
The lending institutions would want to have something in their hands to help gauge each borrower, a tool that would help them measure how risky each prospective client would be in terms of paying back the money owed. Having such a tool would help in greatly improving the chances of lending institutions to get back the money that they have put for borrowing along with interest. Hence, the credit score was born.
A credit score, more commonly known today as the FICO score is a rating that helps establish the creditworthiness of an individual. This rating takes into account several factors about an individual consumer that is usually associated with his or her borrowing pattern. A few of such factors include the individual’s history of repaying debts on time and amounts being owed to lenders at any time period.
Individuals are assessed based on where on the FICO score ranges they usually belong. Ultimately, it is this FICO credit score rating that lets the lenders know just how risky it is to loan money to a certain individual.
The FICO score ranges from a max of 850 and a minimum of 300. The performance of these FICO score ranges is regularly monitored and periodically aligned and updated so that a lender would not need to be concerned about which credit score should be used. Each individual actually has three credit FICO score ranges for any given scoring model because of the three credit reporting agencies that operate independently of each other.
These credit reporting agencies handle the work of updating and regularly monitoring as well as providing lending institutions with credit reports of their borrowing clientele. And these three credit reporting agencies operate and maintain their own independent databases and may contain entirely different data from each other. Most lending institutions would usually check an individual’s FICO score ranges from each credit reporting agency and use the median score to determine the applicant’s credit worthiness
A FICO score ranges between 300 and 850, depending on certain factors that have to do with an individual’s borrowing history and patterns. These factors are weighted according to how important they are perceived to be in the borrowing and paying patterns or behavior of each individual. This has already been formulated by the Fair Isaac Corporation, the developer of the FICO score.
The FICO score ranges are rated as follows: Over 750: Excellent 720 to 750: Very Good 660 to 720: Acceptable 620 to 660: Uncertain Less than 620: Risky
Depending on where an individual is placed on these FICO score ranges would help determine his or her creditworthiness. Rating high would increase significantly one’s likelihood to be approved for a loan or credit line.
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.