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Your FICO score will have a huge impact on your ability to get credit – but just what is a FICO score?
A FICO score is a number ranging from 300 to 850 that tells lenders what kind of borrower you are likely to be. A person with a score of 700 or better is considered a good credit risk and will qualify for favorable interest rates, while someone with a score lower than 700 will be treated more cautiously.
Fair Isaac & Co. Credit developed the FICO scoring system in the late 1950s to estimate how likely credits are to pay their bills and repay loans. The system – widely accepted by lenders as reliable – condenses a borrower’s credit history into a single number that is calculated using scoring models and mathematical tables that assign points for information that is considered likely to predict future credit performance.
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When a person applies for credit, lenders generally order a copy of the borrower’s credit report from one of three credit bureaus -- Experian, Trans Union and Equifax. Each company uses the FICO model to calculate a score and lenders can choose to work with any or all three credit bureaus. Some lenders work exclusively with one company while others request scores from all three credit bureaus and average the scores.
Some lenders will use your social security number to order your credit score while others will order a copy of your full credit report.
An individual’s score is calculated based on several factors including:
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Employment history
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The number of late payments recorded
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The lengthy of time credit has been established
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How much credit has been used compared to the amount of credit available
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The length of time the person has been at their current residence
It is important to order a copy of your credit report and review it for possible errors. Credit reports are available online and most credit bureaus charge between $9 and $15.
If you were recently turned down for credit – within the last 60 days – you are entitled to a free copy of your credit report. You also qualify for a free credit report every twelve months if you:
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