How Does FICO Credit Score Work
Higher scores indicate a lower credit risk to lenders. Each individual has nearly 50 different credit scores comprised for the Fair Isaac FICO scoring model as each of three national credit bureaus, Equifax, Experian and TransUnion, has its own database.
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How Does FICO Credit Score Work
Higher FICO Scores = Lower Payments
When you apply for credit for a “credit card, a car loan, or a mortgage”; lenders require to know what risks they take by loaning money to you. FICO credit scores are the defacto industry-standard for credit scoring – which is used by almost all lenders use to determine your credit worthiness and the level of risk you present in borrowing.
Every American consumers has (3) 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 get your FICO scores in the higher ranges can help you qualify for better rates from lenders. The higher your FICO scores, the less you pay to buy on credit – no matter whether you’re getting a home loan, cell phone, a car loan, or signing up for credit cards.
Example: $150,000 30-year, Fixed-rate mortgage:
|Your FICO® Score||Your interest rate||Your monthly payment|
|760 – 850||5.78%||$878|
|700 – 759||6%||$899|
|680 – 699||6.18%||$916|
|660 – 679||6.39%||$937|
|640 – 659||6.82%||$980|
|620 – 639||7.37%||$1,035|
As you can see, in the example above using today’s national rates, a person with FICO scores of 760 or better will pay $262 less per month for a $150,000 30-year, fixed-rate mortgage than a person with FICO scores below 620 - that’s a savings of $3,144 a year.
You can see how essential it is to get your scores in the higher ranges if they are low, and also how important it is to keep them high if they are good.
FICO® is a registered trademark of Fair Isaac Credit Reporting (myfico.com)
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