Understanding FICO Ratings

Equifax: PO Box 740241, Atlanta, GA 30374, equifax online dispute
Experian: PO Box 2002, Allen, TX 75013, experian online dispute
Transunion: PO Box 2000, Chester, PA 19022, transunion online dispute

One important part of understanding credit is FICO ratings. FICO is a numerical credit rating system named after it's founding agency, Fair Isaac Corporation. It is a numerical scale ranging from 400 on the low end to 800 on the high end and ranks your credit worthiness using an algorithm invented by Fair Isaac Corporation. Other companies have also created their own credit rating systems but FICO remains the most used.

Although the details of these credit rating systems are not known people have reverse engineered them and figured out several key factors that affect your credit rating. Late payments will lower your score. The later you are the more negatively your score is affected. You debt to income ratio is also a factor. The total number of credit inquiries and number of credit cards/lines you posses is not as important.

A score below 580 is considered to be poor.
Between 580 and 620 is considered acceptable.
720 and above is an excellent rating.

The current national average (as of Dec 2007) is 692.

Your FICO score is a key factor when banks and other lenders are determining your eligibility for credit and the rates that they will offer you. Even with the rapidly changing financial industry FICO scores still remain a primary tool used by lenders. It's not the only tool used but it is a commonly used tool for screening out undesirable applicants.

If you have a score that is lower than you desire it's not hopeless. You can work to improve you rating by paying off outstanding accounts. Try to pay off outstanding accounts before they get a change to reach 30 days, 60 days or 90 days past due as these factors can add to the damage done to your credit rating. Your best bet if you have a less than desirable score is to hold off on borrowing and repair your credit rating. This way you will be able to get better rates and save in the long run.

In addition to attempting to raise you FICO rating you should also shop around for lenders. You can use online services such as lendingtree.com to have multiple lenders make you offers and compete for your business.

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