May 19, 2016
Getting a Better Understanding of Credit Scores and FICO Scores as it Relate to Risks
Borrowing a loan for a car, applying for a credit card, financing a home can be very challenging experiences for people all over the U. S. Specifically, because the approvals for each of these financial products can differ greatly from one institution to another. Leaving people like me and you very confused about what criterion is actually used to obtain any type of financial product. Typically, part of the confusion exist because the score that’s reported to these agencies can differ significantly from credit score institution to another. To that end, one of the first things to consider when looking at my credit history is finding out the distinctions between FICO and other credit score bureaus.
In the past, most people did not know what their credit score was or what it meant. These were normally selective criterion used in the background that people simply trusted as accurate. Today, with information being stolen and identity theft, people are starting to pay more attention to their records and how they affect them, With this being said, when trying to figure out how my credit score stacked up with others and the applications that I submitted, the process seamed to get more confusing. Specifically, because the application process for different banks and credit unions are not the same or similar in some cases. For instance, when applying for a car loan, the credit bureaus that were used was either Equifax, TransUnion or Experian. All of which are more commonly known by the average person that frequents the Internet for their information.
Unfortunately, because these bureaus calculate their scores differently, it is also difficult to anticipate which score will be used for my car loan. So, when trying to get ahead of the game by gathering any information that can jeopardize getting the vehicle loan, I would also have to find out which credit score the dealer or credit union used to approve or reject the loan. Compounding these problems was the fact that some people said that my FICO score would be used in these calculations instead of the data that Experian, TransUnion or Equifax had on file. Meaning this score could also be different and the decision would be made off a credit score that I could not verify quickly before being turned down,
So, with this in mind, I started to conduct a little extra research about FICO scores and how they affect the overall approval process of loans. Based on the information that I found, FICO has been around for approximately 25 years so it is relatively new in the game. Even though it existence can only be dated back to this time frame, it is also important to note that the FICO® Score is actually used by 90 % of lenders. So, this is information that must be taken into consideration when applying for any kind of loan. By reviewing and understanding this system in advance, people will get a better understanding of how they are viewed as a potential credit risk and why their loan applications were denied, even when their Experian and Equifax credit scores appeared to be high enough.