Most consumers are aware that they have a credit report, which is essentially a history of their debt and payment practices. They know that when they take out a car loan or use a credit card, their habits in relation to this debt, such as whether or not payments are made on time, becomes a part of their credit report. Most consumers are less familiar with the components that make up their credit score. In fact, many people are not entirely certain just what their FICA credit score is.
A FICA credit score is not the mysterious beast that most consumers fear it is. It is a mathematically derived number that signals to credit providers whether a particular consumer is a reasonable credit risk or not. Having a more attractive FICA credit score may be the difference between receiving a loan or not. It also may help determine how much a consumer can borrow and what interest rate they will pay on the loan.
The credit reporting agencies utilize statistics to arrive at a credit score. They look at things like timely payments, the number of accounts, how old the accounts are, whether or not any accounts have been the subject of collection efforts, and the total amount of outstanding debt when they begin to determine a FICA credit score. This information is compared to that of other consumers with similar habits to determine a particular consumer’s credit-worthiness. Essentially, this is meant to tell potential creditors whether the consumer is likely to pay back their debt and whether they are likely to make those payments on time.
Because a credit score is derived from information from a credit report, it is important to ensure that information contained there is accurate. There are three credit reporting agencies and it is possible for each of these to possess different information. One agency may have an error on a credit report that does not appear on the other two. A credit score derived from this erroneous information may be significantly lower than it should be and may result in a denial of a loan or credit account. The scale of credit scores runs from 300 to 850 – the higher the score, the more reliable the consumer is likely to be. Consumers are entitled to review their credit report and to have any inaccuracies corrected to ensure that their financial reputation is intact.