Why is the FICO credit score rating so confusing? One thing you should know is that all the credit reporting agencies refer to their scoring by different names.
The Equifax Company calls their FICO score rating their Beacon credit rating score. TransUnion calls their credit scoring model the Empirica model. And at Experian, they call their scoring model the Experian/Fair Isaac Risk Model. While we're referring to one scoring model, Fair Isaac, they confuse us by referring to various names.
One important thing to know is that not all credit bureaus offer the true FICO score to consumers. Only one of the three major credit bureaus currently offers you this all-important score. The others offer their own versions, which sometimes differ greatly from the FICO model.
The three major credit bureaus do not share the same information. Each creditor chooses which bureau they will deal with. It's completely up to the creditor which bureau will get the information about you. This is why it's essential to check all three credit reports. Each one contains different information and all three may not have the same creditors listed.
You must examine your credit report from all three credit reporting bureaus before applying for any large loans such as a mortgage loan. Try repairing any errors on all three reports before shopping for any loans because it takes time to correct your credit score and a minimum of 30 days to fix those trademark mistakes.
One common myth, among several others, is that credit counseling can hurt your credit score.
Any of the credit scoring models don't know you're dealing with a credit counseling agency. FICO credit score rating systems ignore any reference to credit counseling that may be in your file.
The FICO credit scoring researchers found that people receiving credit counseling are not likely to default on their debts any more often than those not getting credit counseling. Yes, people who commit to counseling sometimes fail because they cannot deal with the strict debt management rules.
Credit counseling may hurt your ability to get approved for a loan because you probably have had trouble paying creditors and that will show up on your credit report. Some lenders may back away from loan approvals if you are in credit counseling.
The best way to improve your credit score is by keeping current on payments. Each of your bills show up on the credit report and each late payment is also reflected.
Many articles have been written about the importance of having healthy credit. And nowhere is the state of your credit more important than when you apply for a home loan. For most people, a house is the most expensive thing they will ever buy and the overall health of your credit determines whether or not a lender will offer you an affordable home loan. Since the most common measure of financial health is a credit score, most potential buyers are urged by well-meaning sources to "check your credit score before you apply." Many would-be homebuyers head to the Internet to do just that, and seeing that their score is sufficient, they head off, score in hand, to meet with a lender to discuss potential loans.
And then the lender drops the bomb - "Sorry, but your credit score is too low. You don't qualify for the best interest rate."
What happened? How can the credit score you buy be higher than the one the lender receives? The answer is a simple one - there is more than one kind of credit score. Each of the three main credit bureaus - Equifax, Experian and Trans Union, uses a different method of determining credit scores. While the scale and criteria they use are roughly the same, the formula is slightly different at each bureau, so checking with all three bureaus could provide you with three different scores. Or even four - the three bureaus are now also making use of a unified scoring system. But which one is the "correct" score?
Mortgage lenders almost universally check the FICO score, created by Fair, Isaac, and Co. The FICO score is similar to many others, but it's the one that lenders are checking. That means that if you want to know exactly where you stand ahead of time, you need to check your FICO score yourself. And you need to make sure that the number you receive is, in fact, your FICO figure and not some other arbitrary score.
How can you do that? There are many places on the Internet where you can obtain a credit score, but not all of them will offer the FICO figure. Make sure that the site you visit offers the FICO score before you agree to pay. Equifax makes the FICO figure available on their site, as does MyFICO.com. If you aren't sure, you might check with one of those two Websites. Making sure you have an accurate representation of your financial health prior to applying for a home loan is a great idea. Just make sure that you are looking at the same measure of financial health that your lender will use - your FICO score.
Both David Kamau & Charles Essmeier are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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