Tue, Aug 23, 2011 Posted by Lidia

Most of us could probably guess that bad credit will bring your FICO score down but we may not know the details.  You can look at your own credit report or anyone else’s, read through it, and pretty much tell if the person has good or bad credit.  The FICO score puts a numerical value on an individual’s credit.  It takes the pages and pages of the credit reports and all the accounts and statuses listed on them and comes up with a number.

In essence, a FICO score is like a lottery number but you don’t get to select it.  Your credit history selects the number.  It is not just recent credit history that composes the FICO score but the totality of your credit history.  Case in point: a bankruptcy 5 years ago will tank your FICO score but having a near maxed out credit card this year will not as long as you are making the payments.

The numerical system in FICO scores range from the low 500s to around 800.  The higher the score the better the credit.  For example, take two people with scores of 670 and 770 respectively.  What is the difference in that 100-point range?  Oftentimes it is little things such as the person with 670 made a late credit card payment or two.  The person with the 770 score pays all bills on time and may be older, therefore, having a longer credit history to pull credit behavior from than the person with the 670 score.

Now take a look at what major credit problems like bankruptcy and foreclosure will do to these same credit scores.  The person with a 770 has a home foreclosed.  Her score goes down to the mid-600s and mid-500s for bankruptcy.  The person with the initial score of 670 experiences the same issues.  Home foreclosure taking that 670 score down to the high 500s rather than the mid-600s the better credit counter part received.  The 670 scorer would be taken to the low 500s by bankruptcy.

Why should you care about a FICO number?   That FICO number will help determine whether you get a loan or not.  If you are approved for a loan it will determine your interest rate on the loan.  It can also determine if you can get a credit card or not.

The good news is that by taking a bad credit auto loan and keeping an upper hand on the loan by paying on time you will significantly improve your credit and your FICO score.