Credit Scoring Concept

A credit score is used as a risk factor by credit grantors to assess an individual's credit worthiness. The most widely used scoring method is the Fair, Isaac Company score (a FICO score). An individual's credit score is calculated by comparing their current credit history and credit accounts to statistical models. The process is a quick, objective analysis resulting in a credit score. Credit scoring has been around since the 1950's, but gained popularity among credit grantors in the 1980's when the three major credit bureaus began working with the Fair, Isaac Company to develop generic scoring models. As a result, consumers are becoming more aware of credit scoring and its effect on their financial lives.

When you apply for credit ( for a credit card, a car loan, a mortgage, etc) lenders want to know what risk they’d take by loaning money to you. FICO scores are the credit scores most lenders use to determine your credit risk. You have three FICO scores, one for each of the three credit bureaus (Experian, TransUnion, and Equifax). Each score is based on information the credit bureau keeps on file about you. As this information changes, your credit scores tend to change as well.

Your 3 FICO scores affect both how much and what loan terms (interest rate, etc.) lenders will offer you at any given time.

Taking steps to improve your FICO scores can help you qualify for better rates from lenders.