Credit Learning Center
Introducing You to the Credit Score
The company that created the scoring model used today by the credit bureaus is called Fair, Isaac and Co. and commonly known as FICO. Fair Isaac and Co. is a California Company founded in 1956 by Bill Fair and Earl Isaac. They pioneered the field of credit scoring for financial companies. They have expanded their enterprise to cover decision systems, analytics and consulting.
The three major credit bureaus calculate your credit score using software from FICO, hence the commonly used term “FICO Score”. Each credit bureau propriotizes their calculation of this score by giving it their own name. Equifax calls their version of the FICO score the “Beacon score”; Trans Union calls their version of the FICO score the “Empirica score” and Experian creatively calls theirs the “Experian, Fair Isaac score”.
What Your Score Means
According to Equifax, 51% of all the people with a credit score from 550-599 will default on their credit. This rating system is meant to develop a snapshot of the risk you currently represent to a lender. Several parameters in your credit file, including payment history, length of account history, number of open accounts, loans, mortgages, public records, and others are formulated to produce a 3-digit score between 300 and 850. There are other scores used by lenders and insurance companies (some of which are developed by FICO) such as Application and Behavior scores. These other scores take other information into account. Usually a lender will use a combination of your credit score along with other factors, such as income, debt ratio, or current assets when determining your risk. They all have the same objective, to determine the borrower’s potential risk. Regardless of whether the score was generated by FICO or a system based on FICO parameters, they all yield an industry standard 3 digit score. This score places the borrower in one of 3 main categories: Low Risk, Average Risk, and High Risk
Low Risk
If your credit score is above 680, you are generally considered a lower risk and should have no problem getting a good interest rate on your home loan, car loan, or credit card.
Average Risk
If your credit score is below 680, you are average or "sub prime" risk, and will likely be offered less than favorable interest rates and terms on your loans and credit cards.
High Risk
Below 580 is a high-risk score. Although more difficult, you may still be able get a credit card but will likely be required to give a security deposit and be hit with high interest and fees. You can forget about most home loans and the majority of new car loans at this score. Below 580 is no place to be. You will pay much, much more for your credit transactions. You may even pay more for your insurance rates. A very low score can even prevent you from getting a job with many companies.
CRC Las Vegas is not only dedicated to improving your credit but we also what to inform you about the credit industry. Our credit experts have created this section so that you will be better equipped at improving and maintaining your credit and understand how you credit affects you.
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