Your credit score helps lenders determine what kind of risk that they will be taking by giving money to you. It helps them decide at what rate to add interest to your loan, and how much they can safely assume to give you. A lower credit score may make it difficult to get a loan for an inexpensive car; a very high credit score can give you the freedom to get an advance on a house worth hundreds of thousands of dollars.
Your FICO credit score is an important part of your credit reality, and it is the score that most lenders look at most closely. It is comprised of information from the three main credit bureaus - Experian, Equifax and TransUnion - and contains the information from each file the credit bureau maintains with your past financial information. While many aspire to a FICO score above 700 or 760, some have reached the heights of the 850 maximum score - which allows for an unparalleled level of credit security.
On the other end of the spectrum, however, is the extremely low FICO score. If your credit falls to the abysmal 300-point range, you may find it difficult to secure enough money for a used car, or to get an interest rate that will have you tempted to buy one in the first place. While not many people ever reach the 300-point range, dangerously low FICO credit scores exist for thousands of people between the 500 to 580 range. This is where the real trouble starts, and where it can be difficult for you to get a fresh credit start.
With a FICO credit score in this 500-point range, you may still be able to land loans easily enough; but you will likely not be satisfied by your money approved, your terms or your high interest rates. When you sink below this rate - down to 499 and below - you will have reached a point where you will be in serious need of credit help. This will be the time to overhaul your credit reality and FICO score, and begin the difficult battle to repair your credit score.
You may hear your FICO scores alternately referred to as your Empirica score, your Fair Isaac Risk Model or your Beacon score, but whatever they are called they are developed using the same methods - and are rigorously tested by all three credit bureaus. They best thing you can do to begin turning around your credit is continue paying your bills on time, and not allowing large balances and statements to accrue on your accounts. If possible, try to find your oldest line of credit, and continue using that card without leaving balances or using much more than 30% of your credit limit.
Your FICO score will be the very thing that makes or breaks your ability to get low interest and low insurance rates, and you can take control of your bad FICO score by knowing where you stand, and by being responsible with your financial accounts.
Rachel Wink writes about credit score repair and other current personal finance issues affecting many homeowners during this economic downturn.