FICO Scores 101 - Honore Credit Consultant
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FICO Scores 101

FICO Scores 101

What is a FICO Score?

FICO is a software company that invented the credit score. Before it existed, lenders had to review your credit history and determine if you met their criteria for a loan. This could take a while, and was subject to individual opinions and some guesswork. As of 1989, lenders started using the FICO score. It made for an instant way for them to predict if you’re going to be a risk or not.

The FICO score is a snapshot view of your general creditworthiness.

This software program calculates its score based on your credit history. It changes whenever new data causes a positive or negative impact. Miss a payment, your score drops. That old bankruptcy finally ages off, your score raises.

The score is made up of 5 main factors:

  • How faithfully you’ve paid creditors
  • How much you owe (compared to how much credit you have available)
  • How long you’ve had lines of credit
  • How many different kinds of accounts you have
  • How recently and how often you open new lines of credit

A typical FICO score ranges from 300 to 850. A score of 850 is perfect. A score below 620 means you’ll have trouble getting a mortgage. Not paying debts back will cause a low score, but so will a lack of credit history. A score only gets calculated if there is at least 6 months of credit history available.

Each credit bureau (i.e. Equifax, Experian, and Transunion) may have different information about you, so the credit score you have at one bureau may be different than at another.

To complicate things a bit more, there are different versions of the FICO program. The most commonly seen is Score 8. If you apply for a personal or student loan, or a retail credit card, those lenders will probably be using Score 8.

The newest version is Score 9, but it’s not widespread yet. Score 9 weighs medical debt differently, so it will help raise scores for people suffering under that load. It will also help build credit for good renters whose landlords report on-time payments to a credit bureau.

But wait, there’s more. FICO also makes Auto Scores and Bankcard scores, and those range from 250-900. Mortgage lenders often use score versions prior to Score 8.

The moral of the FICO story

Check your credit score before you apply for a loan or line of credit. Find out beforehand which FICO score the lender uses, and which Bureau(s) they pull it from.

Higher scores are better. For the lowest interest rates, aim to raise your score over 700. If you have negative or derogatory items on showing on your report, or debts listed that aren’t yours, your score might be getting unnecessarily brought down. Did you know that you have the right to dispute items on your report that shouldn’t be on there? You can either attempt to do this on your own or you can contact a reputable credit repair company to dispute the items on your behalf!

Call one of our credit consultants today so we can discuss options for helping to improve your credit profile! (844) 967-3724