What is a FICO score and why is it important

08/20/2020

There are many benefits to having a good credit score and yet given its importance in your financial life not everyone really takes the time to understand credit scores or even regularly get a copy of their credit report. Here are a few important questions answered about credit reports and credit scores.
 
Is a credit report the same as a credit score?
No, your credit report contains all of the information that the credit reporting agencies collect on you from lenders, companies and other sources of your payment history. Your credit score is a unique score that credit bureaus calculate from all the information that is on your credit report.
 
What is the best definition of a credit report?
This is a report that shows all of the information that is being reported to the credit bureaus from your current amount of debt, your payment history and any judgements or collection items pending against you. Lenders and other sources report this information regularly to credit reporting agencies. This is the information that is used to calculate your credit score.
 
Do lenders use a credit report in making loan decisions?
Yes, many will use the information from the credit report to calculate your total amount of debts and your monthly debt payment obligations. If the report is inaccurate, you could be denied a loan. This is why it is very important to regularly get a copy of your credit report and dispute any errors that you might find.
 
What are the basics to understand about credit scores?
The most common score is the FICO score and the scale is from 350 – 850. Over 800 is considered excellent. Lenders use scores because it provides a quick understanding of your level of risk or in other terms, your likelihood of paying your loans and other bills. If your score is below 600 your ability to obtain loans might be hindered.
 
How is the FICO score used?
Many lenders use if for determining the rate you will receive on loan. Insurance  companies might use it as part of the criteria to determine your premium and other services providers might use it to determine if they will provide service or not.
 
What the best ways to improve your credit score?
It starts with establishing credit. Many low scores are the result of having no substantial credit. Avoiding having any late payments over 30 days is a good way to build your score and making sure that you don’t max out your credit card limits is another important consideration. These three moves are the most important ways to improve your score.

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