Most people are aware of the three credit reporting agencies TransUnion, Equifax, and Experian. The average difference in scores between the highest and lowest of your three FICO scores is 60 points. This is the result of each of the credit bureaus having different items on their report, which may be correct, incorrect or are not reported in full compliance with credit law.
What is a Credit Score?
A credit score is a number generated by a mathematical formula that is meant to predict credit worthiness. The most common of the credit score standards is the FICO score created by Fair Isaac. The FICO score ranges from 300-850 and is intended as a predictor of whether or not you will be 90 days late on a loan obligation. Fair Isaac uses thousands of credit reports to calibrate the FICO scoring model and is very secretive of the exact formula.
What does My Credit Score Mean?
The lowest category - It's usually a sign of bankruptcies, foreclosure, collections, charge-offs, etc. It's very difficult, if not impossible, to obtain credit. If you are able to find credit, it will require you to put up large portions in cash or equity. If you accept the offer, it will force you into paying ridiculous interest rates as well.
Bad credit - Typically due to late payments, charge offs, medical collections, etc... If you get financing, you are then required to pay large closing costs. You will also be charged very high interest rates due to the risk the lender undertakes in lending you money.
Fair credit - You will find unfavorable terms in financing, but there are more sources made available to you than the previous category.
Good score - However, with today's tighter lending standards, there are less products available to meet the unique needs of borrower. You may be forced into agreeing to terms that you would otherwise not consider.
Great credit - Lenders want to loan you money. You are a good credit risk and will receive favorable financing terms. However with today's tighter lending standards, you may not have low documentation type loans available to you without proving a substantial amount of equity in the transaction.
720 or higher
Excellent credit - This is the category where opportunities arise with any type of financing that may be available. This should be the goal of every consumer. At National Credit Federation, we will teach you how to not only obtain, but maintain this excellent score. It may take some time and discipline, but everyone can eventually achieve this score if equipped with the proper knowledge.
Please remember, credit is not free since there are penalties and fees that can add a substantial amount to your total "cost" of borrowing.
You should take some time to research "credit" and visit National Credit Federation or on Wikipedia since they are very useful and can give you an informative perspective on all the subjects related to "credit" and the industry it has created.
Michael S. Richardson
Director/Mortgage Fraud Services
Office (Direct) 888-877-7951
Author of "An American Epidemic, Mortgage Fraud a Serious Business"