March 3, 2008
Any time you apply for a home loan, credit card, or car loan, lenders are concerned that you might be a risky venture. To help get a better idea of your credit history, they may look at your FICO scores. FICO scores are based on a system developed by Fair Isaac and Company, thus the acronym. Generally speaking, the higher your credit scores, the lower the possibility that you are a credit risk. Of course, it is important to note that many agencies have their own strategies and guidelines they use when determining whether to lend money or not. Research any lender you are intending to petition to see what their guidelines are.
FICO scores are arranged by 50 point segments beginning with 300 and going to more than 800. The scores are calculated according to your credit payment history, the current amount of debt owed, and the types of credit you have. People just beginning to use credit, such as a young adult, will have a lower credit score than a person with a more established credit history. Reports indicate that the majority (27 percent) of US citizens have credit within the 750-799 point range. Anything in this range is considered to be an excellent credit score. Less than 20 percent of the population has scores lower than 600. These people will have difficulty getting a loan at a reasonable rate.
FICO scores are available from three major credit reporting agencies. You will have one FICO score from Experian, one from TransUnion, and one from Equifax. In order to calculate your credit scores, you must have at least one line of credit open and one that has been updated within the past six months at each credit bureau. This ensures that the agencies have updated information on your credit history. Each credit reporting agency has its own name for FICO scores. With Equifax it is the BEACON Score, TransUnion offers the EMPIRICA, and Experian has the Experian/Fair Isaac Risk Model.
As your credit history changes, new credit scores based on your credit will also change. This makes it possible for your credit score to change from month to month. Improving your FICO scores will allow you to not only be able to get the loan you need, but also helps ensure that your interest rates are not outrageous. You can improve your credit scores by paying off credit cards at the end of each month and making sure you make payments on time.
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