The Impact of Personal Credit on Loans and How to Maintain a Good FICO Credit Score, Plus the Three Major U.S. Credit Bureaus:

 

 

 

The Importance of Personal Credit (Credit Score) in Loans

Personal credit (credit score) plays a crucial role in determining loan approval and interest rates. The FICO credit score, in particular, is the standard used by most financial institutions for loan evaluations. Maintaining a high credit score can help secure better loan terms.

How Personal Credit Affects Loans

 

1. Loan Approval Chances

    • A higher credit score increases the likelihood of loan approval, as it indicates good creditworthiness.
    • A lower score may result in loan rejection or require additional documentation.

 

2. Interest Rate Determination

    • A high credit score allows borrowers to access lower interest rates.
    • A low score may lead to high-interest loans or require additional collateral.

 

3. Loan Limits

    • Individuals with higher credit scores are more likely to be approved for larger loan amounts.
    • A lower score may restrict the borrowing limit.

 

4. Credit Card and Financial Product Benefits

    • Maintaining a good credit score provides access to more credit card options, lower APR (Annual Percentage Rate), and special reward benefits.

 

How to Maintain a Good FICO Credit Score

 

1. Make On-Time Payments

    • About 35% of your credit score is determined by your payment history.
    • Always pay credit cards, loans, and utility bills on time.

 

2. Maintain a Low Credit Utilization Rate

    • Keep your credit utilization below 30% of your total credit limit.
    • For example, if your credit limit is $10,000, aim to use only $3,000 or less.

 

3. Limit Hard Inquiries

    • Frequent loan applications or credit card requests can temporarily lower your credit score.
    • Only apply for loans or credit cards when necessary.

 

4. Keep Old Credit Accounts Open

    • Older credit history positively impacts your credit score.
    • Even if you don’t use an old credit card, keeping it open can be beneficial.

 

5. Regularly Monitor Your Credit Report

    • Check for errors in your credit report and request corrections if needed.
    • You can get a free annual credit report at AnnualCreditReport.com.

 

6. Manage Debt Responsibly

    • Prioritize paying off high-interest debt (such as credit card balances) first and create a repayment plan.
    • Reducing overall debt helps improve your credit score over time.

 

 

 

The Three Major U.S. Credit Bureaus

 

In the U.S., there are three major credit bureaus responsible for managing individual credit information. These agencies collect data from financial institutions, credit card companies, and lenders to generate credit reports and scores.

1. Equifax
  • Established in 1899, headquartered in Atlanta, Georgia.
  • Provides credit reports and fraud prevention services.
  • Operates its own credit scoring model, Equifax Credit Score.
  • Faced a major data breach in 2017, raising security concerns.

 

2. Experian
  • Established in 1996, headquartered in Dublin, Ireland (U.S. headquarters in Costa Mesa, California).
  • A global company offering credit information services worldwide.
  • Operates its own credit scoring model, Experian PLUS Score.
  • Provides Experian Boost, allowing consumers to improve their credit score by adding utility and streaming payments to their credit report.

 

3. TransUnion
  • Established in 1968, headquartered in Chicago, Illinois.
  • Offers credit reporting, personal data protection, and fraud prevention services.
  • Provides a Credit Lock service, allowing consumers to lock or unlock their credit reports.

 

4. Roles of Credit Bureaus
  • Track individuals’ credit transactions (loans, credit card usage, late payments, etc.).
  • Calculate credit scores (FICO and proprietary credit scores).
  • Provide credit information to financial institutions for loan and credit card approvals.
  • Offer fraud prevention and identity theft protection services.

Equifax, Experian, and TransUnion each manage individual credit data differently, so it’s important to review your credit reports for discrepancies before applying for loans or credit cards. If you find any errors, request corrections immediately.

Terry kwon

Funding Director / Milestone Point Inc