How FICO® Credit Scores Work
When you apply for credit – whether for a credit card, a car loan, or a mortgage – lenders want
to know what risk they’d take by loaning money to you.
scores are the credit scores (also called credit ratings) most lenders use to determine
your credit risk. You have three FICO
scores, one for each of the three credit bureaus –
Experian, TransUnion, and Equifax. Each credit score is based on information the credit bureau
keeps on file about you. As this information changes, your credit scores tend to change as well.
Your 3 FICO
credit scores affect both how much and what loan terms (interest rate, etc.)
lenders will offer you at any given time.
Taking steps to improve your FICO
scores can help you qualify for better rates from lenders.
The higher your FICO
scores the less you can expect to pay for a loan. For example, on a
year, fixed-rate mortgage in Texas, as of April 19,2010:
Your interest rate is
...and your monthly payment is
As you can see in this example using today’s rates in Texas, a person with a FICO
score of 760 or better
will pay $239 less per month for a $240,000 30-year, fixed-rate mortgage than a person with a FICO
score of 620 –
that’s a savings of $2,868 per year, and $86,040 for the entire loan period.