Your FICO Score May Be affected by Bad Credit History

Your FICO Score May Be affected by Bad Credit History

FICO, originally Fair, Isaac and Company (now known simply as FICO), is an information analytics firm based in San Jose, California dedicated to credit scoring solutions. It was started by Earl Isaac and Bill Fair in 1956. The company's FICO score, an independent measure of consumer credit risk, is now a staple of online lending in the United States. FICO uses numbers, percentages and tables to create a model that predicts credit risk. Based on the answers it receives from your financial and banking records, FICO can determine whether you are a high credit risk and what kind of interest you will pay and if so, at what rate.

Most people, when they apply for loans, want to know what the top lenders use when calculating interest rates and the corresponding fees for their loans. Knowing the factors that top lenders use for these calculations will give you a better idea of how to make your loan application stand out among the rest. Most people would just go to the bank to apply for a loan. But did you know that the top lenders use fico scores? These lenders include banks, credit unions, mortgage companies and non-traditional loan providers such as Internet payday lenders.

When a financial institution calculates its interest rates and fees based on your credit reports and FICO scores, it is called adjusting the credit score or, in other words, raising your FICO score. And, depending on your current credit scores, your loan application will either be approved or rejected. Let's take a look at how the process actually works.

The primary way that top financial institutions calculate interest rates and fees for loans is by using a mathematical algorithm. The main reason why the majority of lenders may use FICO scores is because these credit bureaus do not have access to your original credit report. When you first open a new account, the credit bureau contains information regarding the type of account as well as your previous transactions (if any), which will allow the lender to calculate your risk tolerance and credit score. This calculation is what lenders use to determine whether or not you are credit worthy and will also help them determine if you are a good candidate for a loan.

Now, back to how top financial institutions calculate interest rates and fees. Since they have no direct access to your credit report and FICO scores, they make use of external factors to predict your behavior. One of these external factors is your credit history. Your past credit history is what most financial institutions rely on when calculating interest rates and fees, and if there are negative entries in your credit history, it can negatively affect your FICO score. Negative entries in your credit history may be due to unpaid bills, late payments, or even accounts in collections.

How is this affecting you? If you are interested in applying for a loan or credit card, or looking to rent an apartment, you may want to check your credit reports to make sure that all of the negative items are accurate. Keep in mind that not all credit bureaus are the same, and there are many different scores for each different type of credit account. However, when requesting your free credit report from the different scores that are available, you will likely find the following information: the FICO Score, the three major types of FICO Scores, the minimum amount required for financing, and common default entries. The TGS Financial System credit management app is a phenomenal way to stay on top of your FICO score changes weekly and monthly. Download the app today for either Android or Iphone.