Investment Today

You may have perused several websites in which they are offering you the opportunity to find out what your credit score is. While the number is very important, many of you may want to know exactly what those numbers mean. Here is information to help you understand the genesis of FICO scores and their importance.

The three credit reporting agencies - Equifax, Experian, and TransUnion in conjunction with Fair Isaac Corporation, developed a scoring system in the early 1980s. Although in the beginning these three reporting agencies had different systems, today each of their scoring is equivalent to the others even though they may utilize a somewhat different method.

The significance of the numbers primarily determines whether or not credit is offered. While the scores alone (which can range anywhere from 300 to 900) have no meaning per se, they do matter when individuals apply for loans, credit cards, purchasing a car or a home. For example, if you are seeking a mortgage it is helpful to have a score of 650 or higher. In addition, when you lease a car there is the proverbial meeting with the financial office who checks to determine what your FICO score is at the time. This plays an important part in ascertaining if you can afford the lease payments.

Those individuals with scores ranging from 620 to 625 are considered a good risk, but a score of 600 or lower may indicate that an individual doesn?t have a good track record on payments. Moreover, the higher the score, the better interest rate you can obtain.

So what do the numbers really mean? They offer a good analysis of your credit history. This means that the credit reporting agencies have certain criteria to assess how well or how badly you are maintaining your finances as is related to credit card and loans. They look at your payment history, how much outstanding debt you?ve incurred in relation to your current salary, how long you have maintained your credit cards in good standing, how many applications for credit are indicated on your credit report, and how many credit cards are currently being used.

If you have recently requested your free credit reports as well as your credit score, you may notice that on the score sheet there are specific reasons why you have been given the score from each agency. There is a long list of reasons, which will be outlined for you if you have a low score.

Because each of these credit agencies will not divulge how they arrived at a particular score, it is important to ensure that you:

* Pay your credit card bills on time

* Try to keep the amount owed at 75% of the total credit given

* Decline new applications received in the mail as they impose new inquiries on your report

* Do not close accounts that you have had for years

At a time when we are all concerned about the economy and rising prices for food, gas, and other necessities, it would be incumbent upon us all to refrain from incurring too much debt at this time. Pay down the credit cards you have and in this way your FICO score will increase in the future.

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