The way to best protect your credit is to educate yourself about credit basics, and then monitor your credit on your own. How well do you understand your credit score and credit report? Many people have heard about credit scores from the colorful commercials that have been on the airwaves. Many of these “free services” get your attention and then present an up-sell to sell you paid services. Often folks don’t think about their own credit health until they need to open a new credit card or obtain a loan. Your credit score doesn’t automatically give someone an a green light to loan a certain dollar amount, but rather it is a gauge that suggests your credit worthiness to lenders. It represents your likelihood and ability to repay a loan. Lenders are assessing the risk of default when they are loaning you money.
Most Americans have at least heard the term “FICO score,” though many dismiss it if they aren’t looking to open a credit card or negotiate an installment loan. Who wants to know their creditworthiness until they absolutely must? FICO, or Fair Isaac Co., is a company that created the FICO score, a number arrived at by utilizing information provided by the three major national credit reporting bureaus: Equifax, Experian, and Trans Union. As it relates to applying for a mortgage loan, a credit agency (kind of like a broker of credit data) will give a mortgage lender the ability to check your credit from each of the three bureaus. This data is extracted from the three bureaus simultaneously and commonly filtered through three different versions of the FICO scoring model, resulting in the production of your credit risk scores. It is common for Experian to use FICO V.2.0, Trans Union to use FICO Classic.4.0, and Equifax to use BEACON 5.0 FICO. These scores often differ depending on the different credit bureau. Some creditors don’t even report to the top national bureaus. When differing data, collected by each bureau, is pumped though different software versions, this produces different scores on your report!