FICO credit score

http://www.bankrate.com/finance/credit/what-is-a-fico-score.aspx

Anyone who’s ever thought about looking for a loan has inevitably encountered four familiar (and yet simultaneously mysterious) letters: FICO. What is this term and why is it so important? Bankrate has put together a primer on the country’s most widely known credit-scoring model to clear up the confusion.

What are FICO scores?

Technically, it’s a predictive analytics company founded in 1956. But, generally, when people hear “FICO,” they’re thinking of the scores it gives — three-digit numbers introduced in 1989 that essentially determine “the likelihood that you will pay all of your (debt) obligations on time for the foreseeable future,” says Barry Paperno, former consumer affairs manager for FICO who now runs the blog SpeakingOfCredit.com.

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What is it used for?

Lenders will pull a version of your FICO score when you apply for a loan. They use it to decide whether you should be approved and, subsequently, what interest rate they should offer you. (The better your score, the lower the interest rate.) But a FICO score could pop up in other areas of your life, too. Insurance providers, cellphone companies and landlords, for instance, may also pull a version when deciding whether to do business with you.

What do you mean ‘a version’? There’s more than one?

Per FICO, there are 19 major versions of its score in use today. And FICO’s not the only name in the game. Other analytics companies — the other big name you may have heard is VantageScore — sell their own versions of credit scores to lenders and service providers.

But, “FICO is kind of like the Kleenex of credit scores,” says Kelley Long, a member of the National CPA Financial Literacy Commission under the American Institute of CPAs, or AICPA. “Even though there are a lot of brands of tissue out there, we all call it Kleenex.”

That’s confusing. If there are so many scores, how can I tell whether mine is good?

Well, most FICO scores — and many of its competing models — utilize a 300- to 850-point range to grade consumers. There’s no hard or fast rule on what score within that range will get you a loan or, subsequently, the very best interest rate on it. But, generally, “you can get the best rates on just about any type of loan with 760” or higher, Paperno says. “A low score would be below 650.”