Getting approved for a car loan or credit card can be daunting, especially when you hear your lender mention your FICO score or credit score. What are these scores? How do they affect your ability to get approved? We compare the two most popular credit scores in the United States and explain how and why they are used in this guide.
A credit score is a numerical rating that indicates a person’s likelihood of repaying debt. The higher a person’s credit score, the more likely it is that they will repay their debts in full and on time. A good credit score opens doors to low-interest loans and high credit limits, so it pays to keep track of your rating. Equifax, Experian, and TransUnion are the three major credit reporting agencies that calculate scores based on the information in a consumer’s credit report. Only one company, Fair Isaac Corporation (FICO), calculates the credit scores used by lenders. FICO’s scoring model comes in several flavors, each with its own set of formulas for calculating a score. However, all FICO models are based on five factors: payment history, amounts owed, credit history length, new credit accounts opened, and credit types used. This page has all the info you need. Check it out!
Each month, you can obtain your FICO score for free from each of the three credit bureaus via your credit report. Fair Isaac Corporation’s FICO scores range between 300 and 850. Most lenders use FICO scores as an indicator for whether to give a loan; if your score is too low, you might not get approved at all. Credit scores are utilized more broadly than FICO scores-landlords, employers, and credit card companies can all check them-and are calculated differently. Your credit score is usually comprised of several different scores from three major reporting agencies: Equifax, Experian and TransUnion. Each agency computes its own version of your score based on information in their records about how you pay bills, what types of accounts you have open, and how long those accounts have been open. Because each agency’s information is slightly different, it is possible to have a high score with one agency and a low score with another. Click here for more helpful tips.
The most important thing to remember about credit scores is that there is no such thing as a single good or bad number. Lenders set their own loan approval criteria; some will approve borrowers with lower credit scores, while others will not touch anyone below a certain threshold. So, rather than obsessing over a single number, take your credit score report and make sure everything looks correct. Report immediately any inappropriate content or content that does not belong to you so that it can be removed. You should also monitor your scores over time so that you are aware of any sudden changes that could spell trouble in the future.