Understanding Credit

The Fundamentals


Knowledge is power- and so is a good credit score. But perhaps you needed a clean t-shirt those first weeks of college and couldn’t turn down the folks offering free shirts and a new credit card. Maybe you’ve fallen behind on your monthly payments. Or maybe, you’re seeking help with credit repair after you discovered a glaring mistake on your credit report. Regardless of the reason, you need to understand the ups and downs, ins and outs of credit. This will be the first of multiple posts breaking down the fundamentals of credit, that thing we all need yet remains so mysterious, so that you can use it to empower your future and reach your goals.


If you’re thinking about gaining control over your credit rating, you’ve made the first step in doing so by seeking out more information and turning to Credit Restoration of Texas for help. But, you’ve probably heard of “FICO” at some point along the way, too.

The term “FICO” is actually an abbreviation for Fair Isaac Corporation, which is a publicly-traded corporation that uses sophisticated analytics and mathematical formulas to help financial services companies make complex decisions. In other words, engineer Bill Fair and mathematician Earl Isaac founded a company in 1956 that developed the formula that decides a person’s standard level of credit risk, their “creditworthiness,” or, the level to which a person is likely to repay or service their debts in a timely manner. This mathematical value is reflected in a FICO score that typically ranges from 300 to 850…and as you might suspect, if you have a high FICO score, the better credit you have, and, according to the FICO formula, it is predicted that you are more likely repay your debt and be health risk for a lending institution. This, in turn, means banks or lending institutions may lend you money more easily to say, buy a house, and- most importantly- you may receive lower interest rates and, subsequently, lower payments on those loans.

What’s next?

Next up, we’ll look at the various credit bureaus or credit agencies and some of the ways they calculate your FICO score so we can see how your credit activity impacts your credit rating. As we go along, you’ll be more empowered as a consumer to make the choices that strengthen your credit and clear the path to future success.

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