If you have never been in the market for a car or a house, you probably don’t realize what a FICO score is. For those of us looking to buy a house, however, we are only too aware what it is.

Just what does FICO stand for? It stands for Fair Isaac and Company. What this company does is what is important, and that is to assign a score to any potential borrower so lenders can decide if they should lend to him.

Many people talk of the FICO score as the credit score, your credit rating, or just plain your credit. But they all refer tothe same concept: the idea that lenders want to know whether you represent a good risk for them.

The manner that they find this out is by retaining companies that compile as much financial information about consumers that they can. As a rule, lenders employ the services of the three big credit rating companies, Experian, TransUnion and Equfax.

They may each have a different way of evaluating this credit information and therefore most financial institutions like to use all of the companies to get the best picture of a potential borrower’s credit worthiness.

The information that is now have is you, the consumer’s history of financial dealings. If you get a charge account, pay your electric bill or even rent an apartment, all of the information is stored to see how you have paid these bills. Then all of the information is gathered and weighted, and then a number assigned to this weighted information.

The higher this score, the better your credit rating, and therefore the more likely you will be able to get the mortgage you are applying for. These scores range from 300 to 850, the best.

Sizes of credit lines, length of time to pay bills, or any negative credit issue will be reflected in this score. The credit agencies take all this information from all of these entities and create a file on each consumer.

For illustration purposes, let’s suppose that every consumer starts out with the highest score of 850. Paying bills late, or keeping your credit card balances very high will be reflected in the report. Each record of such a credit incident would bring your score lower and lower. The more incidents like this will bring the score down further and further; a score of 350 or so will tell the lender that you are a bad a good risk.

The reason for this is that a lender will assume if you have been willing to fall behind on your credit obligations with another lender, you will do the same with this lender.

Borrowers who consistently pay on time and keep low balances will have a better chance of getting a loan. But a consistent history of lateness and defaults will almost guarantee that you will be assigned a low credit rating and considered a bad credit risk and not be approved for any loans.

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