Any time you apply for credit, whether it is a mortgage, car loan credit card or student loan, the lender wants to know what their risk will be. FICO Scores are used to give the lenders the ability to determine your credit risk.
Each credit bureau Experian, Equifax, and TransUnion generates a FICO score on you. Your score changes according to the personal information stored by the credit bureau stores. Interest rates and loan amounts are determined by FICO scores. Improving or removing damaging items from your credit report improves your FICO to help you qualify for better loan terms, and greater loan amounts.
For your FICO score to be figured, you’ll need an account that’s been open for more than 6 months and one that’s been updated in that same amount of time. This enables the bureaus to have enough information, and updated information to generate a FICO score.
Credit scores are called FICO scores, due to the fact the technology and software was created by a company called Fair Isaac Company. Ergo F-I-CO was born.
FICO scores provide a guideline for lenders to determine risk on loans they write. This is all based on the information and data you provided in your report. The higher your score the lower the risk- and vice versa.
An established limit of risk, strategy, and scoring model determining future risk has been set by each lender. All 3 credit bureaus use differing terminology for their FICO scores, although they were all developed using the same methods as Fair Isaac Co. Here are the different scoring models.
Credit Reporting Agency & Scoring Model Name
- Equifax uses BEACONÂ® Score
- Experian uses Experian/Fair Isaac Risk Model (FICO)
- TransUnion uses EMPIRICAÂ®
When you talk about your credit score, generally people believe you are talking about your FICO score, credit bureau scores are not the only criteria used.
They are part of the overall components used here are a few more are:
- How much money you make
- Your work experience
- Residence (either own or rent), etc.
In order to create more confusion among the consumers, many lenders use different scoring models, instead of relying on FICO or their respective namebrand. There could be many different variations of a single scoring model.
Scoring is widely diverse for the different bureaus. This is because each bureau may keep different information on you, and assign different items more, or less in the weighting process.
A longer credit history and payments made in a timely fashion, will enhance your FICO score, but late payments and sometimes the entry of inaccurate data, will cause your score to go down.
Your credit scores will dictate how you will be able to secure credit lines, in this time of financial turmoil it would be wise to stay on top of your credit files.
To Your Success,