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Navigating Credit and FICO Scores

Navigating Credit and FICO Scores

We live in a world where your financial history is very important. If you want to buy a car, rent or own a home, get a credit card, or start a business your credit score will play a huge part in determining if any of this is possible. Credit and FICO scores can be really confusing and hard to understand. We are here to help you better understand what a FICO score is, what a credit score is, what determines if you have good or bad credit and the difference between a free credit score and your FICO score. Often time’s people don’t realize how the FICO credit scoring process works and how it changed during the recession; having a broader understanding of these basic credit tools can help you improve your finances!

What is a FICO Score?
First off, FICO is a company that specializes in predictive analysis, meaning they take your financial history information and analyze it to predict your financial future. More specifically they take your credit information and uses it to create a score that help lenders predict your financial behavior (whether or not you are a perceived risk). The credit score is calculated using information from one of three major credit reporting agencies, Experian, Equifax, or TransUnion, as the company of FICO is not a credit-reporting agency.

It is called a FICO score because the company that develops the score is called Fair Isaac Co., and it is official name was shortened to FICO a few years back.

The FICO score range is from 300 to 850, with higher scores being associated with less risk to the lender or insurer. The higher your FICO score the better your rate will be when you borrow or seek out insurance. Five main factors contribute to your FICO score; these are your payment history (35 percent), current debt/amount owed (30 percent), age of credit history (15 percent), new credit inquiries (10 percent), and types of credit (10 percent). These factors also play a large part in other credit scoring methods, so usually if you have a strong FICO score you can assume your other credit model scores will also be strong.

Credit Score V. FICO Score
What is the difference between your credit score that you receive from Experian, TransUnion or Equifax and your FICO score?  The three credit agencies use different scoring models and all scores are dependent upon the credit report that each company receives. Basically Experian may receive different information that TransUnion or Equifax, and that may result in the discrepancies between their scores.

When you get your FICO score, you will actually receive three different credit scores, one for each credit bureaus based on their files on you. Your FICO score takes into account your current payment history like the credit bureaus do, but also the other four factors that change it a little bit, and give it a larger range (between 300 and 850 compared to between 300 and 830).

You can purchase your FICO credit score directly from FICO.

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