FICO Score – What Does Yours Mean?


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What is a FICO Score Anyway?

What Is a FICO Score

So what does a FICO score mean? Well, your credit score is important, right? It is also valuable for you to know it. What’s even more valuable is if you know it, you know what it means and can actually do the right things to impact it. In the financial services world, your credit score is often used interchangeably with the word FICO. Actually, to be 100% accurate, FICO is not a word which is why if you would have tried to look it up in the dictionary, you may not find it. FICO is an acronym. FICO stands for Fair, Isaac and Company. They are the founders of the credit score. FICO came up with the original formula that has evolved into today’s credit score. The formula puts a value on your credit risk by using a three digit number that is similar to a “points system.” The range starts at 300 on the low end and goes all the way up to 850 on the high end. The thing that irks me is the 850. Why couldn’t we just use 1,000 on the top side and 100 on the low side? This 300-850 stuff already makes your score confusing! The truth is that it is still pretty easy to navigate. It is very simple. The lower the FICO, the worse your credit. The higher the FICO score, the better your credit.

What a Low FICO Score Does

Most credit facilities default to using the FICO score because it’s easy for them to use and, quite honestly, at this point, it’s mainstream. As a consumer, it’s important for you to know your score too. For example, if you wanted to buy a car (and had taken advantage of the free credit score program from Credit Sesame) and knew that your FICO was only around 380, would it make sense for you to meet with the finance manager at the dealership? Probably not. In fact, there are many dealers out there such as buy here/pay here car lots that prey on the weak and would love to meet with you. However, STAY AWAY! Your FICO is low either because you have no credit or you didn’t use the credit you had properly. These situations will only make things worse for you. The lower your FICO, the worse the terms of any lending instrument.

How About A High FICO Number?

On the contrary, had you determined your FICO was around 800, not only would you be able to meet with the finance manager, you would have leverage. You would be able to get the best terms possible because you are a low risk to them and a great opportunity for them to get a nearly “guaranteed return.” By having a FICO score of 800, it screams to lenders that you pay your bills. Not only do you pay your bills, but you pay them on time. Because of this, you are profitable to them with very minimal risk. Finance companies do not like risk in today’s economy. If they take risk, you can be sure they will charge you for it.

Sign up with Credit Sesame here to get your FICO score and a full copy of your credit report. Stay tuned for future posts as we are going to dive in and show you exactly how your FICO scores are calculated.

~David

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