Like it or not, most aspects of the consumer world revolve around the individual's personal credit score. Thinking of buying a new automobile? The better the credit score the more favorable the auto loan. A new home on the horizon? Same goes here. Higher scores can mean savings of tens of thousands of dollars on mortgage interest paid over the life of the loan. While improving and maintaining good scores is important, understanding the inner workings of one's credit score is the best way to start down that road of knowledge.
Starting at the very beginning, what does FICO mean? It is an acronym for the business which created the credit worlds most dominating software applications used by the major credit bureaus to determine an individual's credit rating. The name of that business is Fair Isaac and COmpany, hence FICO.
But one does not have a FICO score in and of itself. Instead, most consumers with credit histories have three different credit scores which are calculated, in part, using the FICO software. So then, how do these three companies come about affecting ones ability to obtain credit more reasonably?
Competing with each other are Equifax, Experian and TransUnion. Essentially all three companies do the same thing, though in slightly different ways. Just to make matters a little more confusing for the unaware consumer each of them have their own name for the proprietary credit score their company produces. Equifax has the BEACON Score, Experian the Experian/Fair Isaac Risk Model, and TransUnion's is the EMPIRICA.
Now with not one, but three credit scores to worry about, the average consumer learns that many lenders have their own models which they produce a credit score from. Though lenders tend to use one or more of the major credit bureaus numbers, they also have their own equations in which the bureau numbers are but one variable. Instead of just three, a person can have an infinite number of scores.
Confusing? It is. But it need not cause one to lose sleep.
Because credit scoring is a very competitive world, most of the numbers one is likely to see should be relatively close to each other. If they are not, chances are the one number which is widely divergent from the others has some sort of reporting error contributing to the variance.
As a consumer, keeping an eye on just such variances is an important part of maintaining a healthy personal credit rating. Why? Because it can be impossible to know which of the credit bureaus a lender may draw its credit score information from. When applying for a vehicle loan, if the bank or credit union in consideration uses numbers that are untrue and much worse than the scores available at the other companies, the loan will either be rejected or offered with very unfavorable terms.
It is also good to understand that credit scores are a very fluid, changing number. With most creditors now reporting in near real time, good or bad activities get applied to one's FICO scores very quickly. Scores at the beginning of the month are likely to be quite different than at the end of the month.
Bearing this fluidity in mind is another important reason to consider subscribing to one of the many credit reporting services. Knowing exactly when to apply for a loan can save hundreds of dollars. Plus, having access to one's personal information can help reduce or minimize the affects of stolen identity as the crime adversely damages ones credit history.
Tim Coffman is a freelance writer for My Credit Group . He assists people with credit repair services and provides valuable online resources.
Starting at the very beginning, what does FICO mean? It is an acronym for the business which created the credit worlds most dominating software applications used by the major credit bureaus to determine an individual's credit rating. The name of that business is Fair Isaac and COmpany, hence FICO.
But one does not have a FICO score in and of itself. Instead, most consumers with credit histories have three different credit scores which are calculated, in part, using the FICO software. So then, how do these three companies come about affecting ones ability to obtain credit more reasonably?
Competing with each other are Equifax, Experian and TransUnion. Essentially all three companies do the same thing, though in slightly different ways. Just to make matters a little more confusing for the unaware consumer each of them have their own name for the proprietary credit score their company produces. Equifax has the BEACON Score, Experian the Experian/Fair Isaac Risk Model, and TransUnion's is the EMPIRICA.
Now with not one, but three credit scores to worry about, the average consumer learns that many lenders have their own models which they produce a credit score from. Though lenders tend to use one or more of the major credit bureaus numbers, they also have their own equations in which the bureau numbers are but one variable. Instead of just three, a person can have an infinite number of scores.
Confusing? It is. But it need not cause one to lose sleep.
Because credit scoring is a very competitive world, most of the numbers one is likely to see should be relatively close to each other. If they are not, chances are the one number which is widely divergent from the others has some sort of reporting error contributing to the variance.
As a consumer, keeping an eye on just such variances is an important part of maintaining a healthy personal credit rating. Why? Because it can be impossible to know which of the credit bureaus a lender may draw its credit score information from. When applying for a vehicle loan, if the bank or credit union in consideration uses numbers that are untrue and much worse than the scores available at the other companies, the loan will either be rejected or offered with very unfavorable terms.
It is also good to understand that credit scores are a very fluid, changing number. With most creditors now reporting in near real time, good or bad activities get applied to one's FICO scores very quickly. Scores at the beginning of the month are likely to be quite different than at the end of the month.
Bearing this fluidity in mind is another important reason to consider subscribing to one of the many credit reporting services. Knowing exactly when to apply for a loan can save hundreds of dollars. Plus, having access to one's personal information can help reduce or minimize the affects of stolen identity as the crime adversely damages ones credit history.
Tim Coffman is a freelance writer for My Credit Group . He assists people with credit repair services and provides valuable online resources.
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