Thus, there are a few issues which make your FICO score, offered by Fair Isaac Corporation, to be lower than other scores. FICO scores represent the most common credit scores used by the lenders, but in fact, there are numerous calculations models available. Such a scenario implies that the score that you procure from a credit bureau or any other credit scoring firm may well be different from your FICO score that lenders rely on.
What is the FICO Score? A FICO score is a three-digit number between 300 and 850 that reflects an individual’s creditworthiness according to credit information from the three credit reporting agencies, namely Experian, TransUnion, and Equifax. The FICO scoring model considers five major factors when calculating the score including payment history, the amount of credit utilized, credit history length, the types of credit used, and credit inquiries. FICO scores are employed by more than ninety percent of lenders and creditors in evaluating consumer credit risk while extending loans. FICO score is calculated separately by each of the three credit reporting companies using the information in your credit report that is available to them.
Common Inquiries Regarding Credit Scores Though other credit scoring systems are used to ascertain credit scores as well, FICO scores are the most often employed. For example, another model based on a comparable scale and range as FICO ratings is VantageScore. Nonetheless, the methods used in the calculation of VantageScore and FICO scores vary. Alternatively, credit bureaus or other companies may provide additional proprietary credit ratings straightforwardly. These scores include additional information or computations that provide different ending outcomes than FICO scores. In essence, FICO scores are still the credit ratings lenders use; others just provide more general creditworthiness information.
Why Your FICO Score May Be Lower There are several reasons
- Credit Report Discrepancy While FICO scores rely on the data collected from the three major bureaus, other scores you get to see may only depend on the report from only one bureau. If there are errors or reporting differences between the credit reports, this may change the information that is being scored and reduce your FICO score versus other score types.
- Stricter Scoring Criteria One might have to be careful with the FICO scoring model because it may give more weight to negative information as compared to other scoring models. For instance, FICO considers missed payments more than anything else that can considerably bring down your score. Other credit scores may consider the last payment or have more specific parameters that allow them to be flexible.
- Not Taken Into Consideration Certain Data Inputs Other credit scores incorporate other factors into their calculations that are not considered in the FICO scoring model. For example the newer credit score models may include things like utility bills or rent in the models. These additional good payment references can improve other scores but not FICO.
- Version Differences It is important to understand that FICO actually provides the consumer with several different types of credit scoring models, that are adapted to certain industries or lending types. For instance, auto lenders may use earlier FICO score model while credit card issuers may use newer model. If you buy a FICO score and it is not the same FICO score that the lender uses, large scoring differences may occur.
How to Monitor Your Actual FICO Score Because FICO scores are employed in the majority of lending decisions, it is advisable to review your specific FICO score before applying for new credit.
There are a few ways to access your true FICO scores:
- Buy your scores from MyFICO. com Avoid free scores that come with trial offers and the like. You get your scores from all three major bureaus and they use different types of FICO scores.
- You can get the FICO Score that your bank uses from your credit card issuer or on your bank website if available.
- Check out FICO scores offered for free on some of the websites that offer personal finance information.
- The actual scores that you get from these sources will exactly depict your FICO scores that the lenders look into, therefore giving you a genuine report of your creditworthiness. Each of your FICO scores might vary depending on the credit bureau, so make sure to review the reports from Experian, Equifax, and TransUnion. This is because it is the numbers currently reflected in your three credit reports, which can help explain why you have been denied credit, or offered higher interest rates or collateral than you would like.
- Raising a Low FICO Score If your FICO score is substantially lower than you expected impacting your ability to get approved financing, there are various effective strategies to start improving it:If your FICO score is substantially lower than you expected impacting your ability to get approved financing, there are various effective strategies to start improving it:
- Ensure all existed debts and bills are paid to the last cent and at the right time every month. If any of the accounts has autopay options, it should be set up.
- Reduce outstanding balances on credit cards and other types of credit to less than six thousand dollars.
- To further build credit score, avoid making more than two new credit inquiries for the next one year by applying for necessary credit only.
- Ensure that you have corrected any mistakes on the credit reports that may be exerting a lot of pressure on your score.
- Think about including positive tradeline history for example the option of being an authorized user on an available credit card.
Therefore, it is advisable to give special attention to these areas for half a year to a year. Then you check your new FICO scores. When you practice smart credit usage and payment patterns, your true FICO score should improve to enable you secure relevant loans and credit products that you need. It is important to assess it frequently and to comprehend how it is different from other credit scores.
Notably, the key message is checking the actual FICO credit score used by lenders rather than other credit scores, which are often more generic. This puts you in a better position to know how creditors will assess your credit worthiness for mortgages, car financing, credit cards and other products. It may become a disappointment if one has not addressed a lower than expected FICO score earlier on.
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