FICO Scores

FICO scores are a common term for credit scores, those all important 3-digit numbers that tell lenders how likely you are to default on a loan. The phrase, FICO scores, developed because the scoring models were created by Fair Isaac Corporation (or FICO) which first applied statistical methods to the reading of credit reports. Many, if not most, credit scores in the U.S. are derived from FICO scoring models but not all. However, it's become a common practice to use the FICO name.

The three large American credit bureaus each use a scoring model based on FICO but the names differ - Empirica, Beacon and Fair Isaac-Risk Score. Many banks have their own proprietary scoring software & methods but also use FICO scores to weigh their credit applications.

Your FICO score has everything to do with who gives you credit - or doesn't. The scale runs from 350 to 850 with the majority of people falling into the 650-750 range. Credit from 650-700 is considered good, while credit from 700-750 is considered very good. Credit above 750 is excellent. Surprisingly, most Americans have very good credit (scare articles about a nation of debtors to the contrary). Nearly 73% have credit ratings that would qualify as good.

Most people have 3 reports, 1 at each major credit bureau: TransUnion, Equifax and Experian. You are entitled to look over your report once a year to check it for errors and for transparency purposes. You can see your reports for free at annualcreditreport.com, the official site which is managed by the bureaus. Or you can try out a credit monitoring service for free reports which contain your credit scores as well. Usually they have 7 day or 30 day free trials.

See 3 free credit report and scores

Once you have your reports, go over them with a microscope. It's likely there will be errors. Recent studies have found that a majority of reports contain inaccuracies, though the kind of errors and their impact vary.

Many errors are not going to have a large effect on your credit score. Misspellings, wrong addresses and the like are irritating but not credit-destroying. You should concern yourself with wrong information such as payments that were not credited, accounts that are listed as open with debt outstanding which are in fact paid, etc. It is not difficult to dispute these errors with the credit reporting agencies. Each company website contains an area to dispute errors.

TransUnion

Experian

Equifax