Whether you need a credit card for bad credit or good credit score, you hear the terms all the time – FICO score, credit score, credit rating – but what does this really mean?
A FICO score is a number which creditors use to tell them how financially responsible you have been in the past, basically. It is calculated and administered by a company called Fair Isaac. This number can have a huge impact on your financial life, so it is important that you understand it.
No one outside of Fair Isaac knows exactly how this score is calculated; the company treats it like a secret formula. But we do know that the biggest aspects are how much debt you have, how much open credit you have, how long you have had accounts, and how timely you are with your payments. Other things, such as foreclosure and bankruptcy, also factor in to your score. FICO says on their website that the formula changes based on your credit history. For example, they say, a person who has a brief credit history will have their score calculated differently than someone with a longer credit history – different factors will be weighted differently. A credit score can range from 300 points to 850 points. If you have a FICO under 660 there is probably not any easy to get credit cards without getting a secured card.
Yes. According to MSN Money, and reality, each of the three major credit bureaus (Trans Union, Equifax and Experian) who maintain your credit report use a slightly different calculation for FICO scores. This means if you want a credit card for bad credit it can be hard to know if you really have a bad credit score. Usually a mortgage or car company will pull all three scores and use the middle or an average to determine your credit worthiness, according to MSN Money. Credit card companies usually pull just one and go with it. There are also other companies out there trying to get their credit score formula to be used more widely, but FICO is still the top dog in the United States.
While FICO was originally intended for use by mortgage lenders, it now has much wider applications. They still rely on this score heavily in the mortgage industry, with your FICO one of the main factors in determining loan eligibility, second perhaps only to your income. But now car financing banks, credit card banks, even insurance companies and some employers use the FICO score. Most of the time they get your FICO when you fill out an application, though some companies can do a “soft pull” (a credit inquiry that doesn’t detract points from your FICO) without your permission.
When you go to the websites for the big three credit bureaus you can buy your credit report. And, for an additional fee you can buy your FICO score. Yep, you have to pay for it. In fact, there is no place to get your FICO for free. You can go to MyFICO.com and get your score, but this site, owned by Fair Isaac itself, will charge you. Other places that say they will give you your credit score for free don’t really give you your real FICO, it’s just an estimate. However, many credit card companies are starting to offer your FICO score, every month, for free as a perk for being a member.
In addition, remember that your FICO changes – frequently. In fact, the formula they use to calculate it changes sometimes. So if you are considering a credit card for bad credit, know about your score first – maybe it’s not as bad as you think. But if your FICO score is low, like below 660, you may find that getting a credit card for bad credit with no deposit is almost impossible.
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