If you are asking "Why Should I care FICO ?" than please read following and I bet you really really in love with FICO !
Have You Been FICO'd?
- Why you pay 18% on your credit card debt yet When your friend pays only 5.9% ?
- Why every time you try to refinance your home the interest rate you are quoted is so much higher than what you read about in the paper?
All of us have been FICO'D in one way or another. When credit card companies, car and mortgage lenders, landlords, insurance companies, and even cell phone companies sit down and figure out if they should do business with you - and if so at what interest rate - they depend on three numbers known as your FICO score. The higher your FICO score the lower the interest rate you will pay. The lower your FICO score the more you'll pay.
How Low Can You Go?
FICO scores range from a low of 300 to a high of 850. In reality there are essentially only six ranges of FICO scores that count. But if you have a score of anything below 500 you are considered a financial nightmare and are thrown into the "sub-standard" interest rate category. Starting from high to low here six ranges of FICO scores that count:
Who, What, and Why?
Your FICO score comes from a company that was started back in 1956 called Fair, Isaac Corporation. Fair Isaac was the creator of the credit scoring system. Your score reflects
All that information is provided to them from the 3 credit bureaus that track just about every financial move any one make.
- whether you pay off your credit card balances each month,
- whether you pay other bills on time,
- how many cards you have, and
- what percentage of your credit card limit you use each month, as well as
- a number of other algorithms that they call their secret sauce.
This number indicates to the lender if you are going to pay that money back on time and in full, or if chances are you will default. The more of a risk they think you are the higher the interest rate they will charge you to make up for any losses they may sustain because of your failure to repay.
You Scored 3 Times
You not only have one FICO score you have 3 As you may know there are three credit reporting bureaus:
Every time you pay a bill and more importantly when you don't pay a bill it is reported to at least one of the three bureaus. That creates a bit of a hassle for all of us because not all of your creditors report to all three bureaus. One may report to Equifax, one may report to TransUnion and another may report to Experian. It is important to understand is that because of this nutty system you have 3 credit reports and thus three credit scores from FICO. And you need to know your score from all three credit bureaus; especially if you are applying for a mortgage.
How Much Money Does a Good FICO Score Save Me Versus a Bad One?
Let's say if you were applying for a 30-year $150,000 mortgage the difference between being in the top FICO score range and the lower FICO score range translates into a difference of $384 per month. That comes to a whopping $138,240 in interest payments over the life of the loan? Don't you think $138,240 is a tremendous savings.
Check out the table below that shows the typical mortgage rate you might pay based on FICO scores.
|720 - 850
|700 - 719
|675 - 699
|620 - 674
|560 - 619
|500 - 559
Don't enjoy by thinking that "I am not going to buy new home, so it didn't concern me". It's not just about your mortgage but your FICO score is going to play a part in any car loan, or the interest rate on your credit card, or whether you deserve a boost in your credit card limit. It's also used by insurance companies in setting premiums and landlords deciding if they want to rent to you. And now some employers are checking your credit record during the hiring process. So if you want to rent an apartment, get a job, or even qualify for that zero percent interest rate offer on your new car loan, you best have a good FICO score.
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