Your FICA Score: What you need to know
If you’ve ever applied and been turned down for a credit card or loan, there’s a good chance it may be because of your credit score. Understanding what a credit score is and how your actions affect your score will go a long way in helping you get credit when you need it.
What Is a Credit Score?
First of all, your credit score is called a FICO, not a FICA, score. FICA stands for Federal Insurance Contribution Act and is the taxes you see taken out of your paycheck for social security and Medicare. FICO is a system developed by the Fair Isaac Corp. that analyzes information in your credit report to determine whether you’re a good or bad credit risk.
Your FICO score is a number between 300 and 850, with anything over about 720 considered “good” credit, although different credit card companies and banks have different standards for what scores are acceptable. A score over 800 will usually get you the best possible rates anywhere you go.
What Is My Credit Score Used For?
Credit card companies, as well as banks, mortgage companies, and other lenders all use FICO scores to determine whether they’re willing to lend you money, and if so, how much and at what interest rate. Your FICO score is generally considered the best indicator of what kind of risk you are because it only uses information contained in your credit report, it doesn’t take into account any personal information. It’s a statistical analysis that has proven fairly accurate over the last 50 years. Remember, though, that it’s not the only factor used in deciding to extend credit.
Who Determines My Credit Score?
Card companies and lenders will almost always get your credit score from one of the three major creditbureaus: Equifax, Experian, or TransUnion. Because each bureau produces their own credit report and often has slightly different information from the others, your score can vary widely between the three bureaus. Rather than knowing one score and considering it your “credit score,” you should know your score from all three bureaus. Then if you know which bureau the card company uses, you’ll have a pretty good idea of where you’ll stand with your score.
How Do They Figure Out My Score?
Your FICO score is determined by a complicated formula that looks at how you’ve used credit in the past and indicates how you’re likely to use it in the future. Next time, I’ll talk about specific things considered in the formula and how to improve your score. But generally it takes information from your credit report, which is basically a picture of your entire credit history at the time of the report. It shows how many and what kind of credit accounts you’ve had (currently and in the past), how long you’ve had them, how much you currently owe, and how well you’ve done at making your payments, among other information.
Your FICO score doesn’t take into account any personal information, such as race, religion, gender, marital status, or age. It also doesn’t indicate the rate you may be paying on any of your accounts. This way, it forces card companies and other lenders to make their decision based solely on your current credit history, and not on any other factors.
Does a Low Score Mean I’ll Never Be Able t Get Credit?
Not necessarily. While your FICO score is a big part of the decision to extend credit, lenders also look at things like your income, where you work and how long you’ve been there, and how much debt you already have as opposed to how much you may be able to pay. When they take everything into account, they sometimes deny credit to people with higher scores or offer it to people with lower scores, if they meet certain criteria.
Also, your score is constantly changing as your credit and payment history changes. While your score can go down, there are a number of things you can do to make it go up over time and stay high even as you take on more credit. As I said, I’ll talk about that next, but in the meantime you can find a lot more information about credit scores at www.myfico.com.
Related posts:
- Why raise your Fico score?
- Shedding Debt vs. the Credit Score
- New FICO Score Information
- How Your FICO Score Impacts Your Life
- Your FICO Score – Understanding “Adverse Public Records”
