Your credit or "FICO" score is vital to your real estate investment career. It's no secret that the higher your credit score, the better the chances of your obtaining loans and getting them at a lower interest rate. It keeps money in your pocket!

Remember this essential fact: lenders are in the business of loaning money and loaning it at the lowest risk possible so they're going to look hard at your credit score before pulling cash out of their own pockets. This information tells you should understand how credit scores are calculated and what you can do to raise your own credit score if it's low. This article provides you with that vital information Background on Credit Scores So, what exactly is a credit score? Simply put, it's a formula used by lenders and others to give them an objective method to predict how likely it is that you will repay a new loan. A credit score is the result of complicated formulas for rating your credit worthiness.

You'll often hear a credit score referred to as a "FICO" score. This term comes from two men named Fair and Isaac. In 1955, they founded a company called Fair Isaac Corporation. Over the years, the name got shortened to "FICO." Fair, Isaac is a for-profit company, traded on the New York Stock Exchange (NYSE: FI). Their exact formula for calculating credit scores is proprietary; that is, it's secret.

Each of the major American credit reporting agencies (CRAs) has a relationship with Fair Isaac. The three major CRAs are: Experian, Equifax, and TransUnion.

Now, you'd think that each CRA would have the same score for each person, but they have different models for determining your credit score so your score may vary from one CRA to the other!

In any case, they're still referred to collectively as "FICO" scores. Each model is based on experience with millions of consumers. With each model, the higher your score, the better your credit rating. Calculation of Credit Scores A credit score depends on the credit scoring model used by the CRAs. In general, FICO models look at these items in your history: Past delinquencies Derogatory payment behavior Current debt level Length of credit history Types of credit Number of inquiries by lenders and others into credit history.

Although the models vary, the general formula looks like this:

35 percent on a borrower's payment history. 30 percent on debt. 15 percent on how long the applicant has had credit. 10 percent on new credit Another 10 percent on types of credit.

There is a range of FICO scores. Within that range, the higher the score, the better your credit rating is. For example, a perfect score is 850 (only 1% of the U.S. population). Eleven percent (11%) of the population has a score of 800. In the above two instances, the borrower likely will get a lower interest rate and have the loan closed within days.

The average person has a FICO score of 720. The interest rate will be higher, and it'll take days or weeks to close the loan.

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