FICO® – What is it and why does it matter
FICO stands for The Fair Isaac Corporation, created in 1956 by Engineer Bill Fair and Mathematician Earl Isaac. Since then FICO® Scores have helped lenders make more informed and efficient credit-granting decisions across various industries.
FICO Scores are based on credit information housed at each of the three credit bureaus. Knowing your FICO Scores is important because FICO Scores are used in 90% of credit decisions by the nation’s top lenders.
Your FICO® Score powered by Experian is based on the following categories of credit bureau information: payment history, amounts owed, length of credit history, types of credit in use, and new credit.
Let’s break it down to a simple graphic that tells a story about financing a car based on different FICO Scores. It may be an eye-opener for some.
It begs the question of, what’s my FICO Score?
The first step is to request a free copy of your credit report so that you can verify what information is or is not appearing. When an adverse action is taken, such as having your application declined, you are entitled to a free report from the credit reporting company the lender used in making its decision. The lender must provide you with instructions to request your report.
You also can request a copy of your credit report annually from each of the national credit reporting companies.
If you receive your report and do not see your accounts listed, or instead get a notice that the credit reporting company does not have a record on file for you, contact the department stores you have accounts with and verify that they report to at least one of the credit reporting companies. Creditors are not required to report account information, so it is possible that these particular lenders choose not to report your accounts.
If that is the case, you may simply not have a credit report. To begin establishing a credit history, apply for a traditional credit card through your bank or credit union. If you are unable to qualify based on a lack of credit history, you might request a secured credit card instead. You can also ask a family member or friend to add you to one or more of their accounts as an authorized user or to act as a cosigner or joint account holder on a new loan or credit card account.
As long as all payments are made as agreed, in time you will be able to build up a strong credit history and qualify for bigger purchases, such as a car loan, in the future.
Notably, it can save you money by maintaining or establishing a good FICO Score.
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