3 Credit Score Facts That May Surprise You

By Nathan Hamilton Markets Fool.com

Three in five Americans don't know their credit scores, according to LendingTree research. A credit score is one of the most important numbers in their financial lives, yet many people don't pay enough attention to them.

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People with high credit scores can secure low mortgage rates and land some of the best credit card sign-up bonuses. People with low credit scores tend to be charged higher interest rates, and their applications for credit cards, rental units, and even jobs may be denied.

In the video below, Motley Fool analysts Michael Douglass and Nathan Hamilton discuss three credit score facts that may surprise you.

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Michael Douglass:So let's talk about some weird, to me, very much surprising credit score facts that you may not know about. The first one -- this really blew my mind -- 10 billion FICO scores are sold each year, which is more than four times the number of burgers McDonald's sells.

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Nathan Hamilton:Yes. McDonald's puts out a large number of hamburgers, but...

Douglass:Right!

Hamilton: ...I mean, it puts into perspective how much we rely upon FICO scores, which are, for all intents and purposes, the official FICO score. Legally, that's not the case, but essentially, many banks, lending institutions, when you're signing an apartment lease, check a credit score, and typically, that's going to be your FICO score.

So it's a three-digit number that affects everything in your financial life, and that means that Fair Isaac Corporation -- FICO, in this case -- is being paid essentially 10 billion times each year to pull that score for various credit-lending decisions -- any sort of credit-risk decision that somebody may implement.

Douglass:It's a truly mind-boggling number. Also, and this one's just unfortunate, 60% of Americans don't know their credit score, and that's thanks to some research provided by our friends over at LendingTree.

Hamilton:And it's astounding when you think about it, because it is such an important number in your financial life. Essentially, three out of five of us aren't aware of what our credit scores are -- and maybe that's a matter of education or not -- but understanding exactly how it impacts everything from your mortgage rate, to the credit card offers, to your student loans, to your car loans -- everything, as a borrower, over your entire financial life.

If you add it all up, having a good credit score compared to a low credit score can mean the difference between retiring with $1 million, or falling a few hundred thousand dollars short of it because you're paying that much more in interest due to a higher interest rate when you have a lower FICO score. So it pays a huge dividend to [know your FICO score].

And it's very easy to actually grab. Go online, type it into Google. There are plenty of options out there to grab your FICO score. Some credit cards give it to you for free. Many people actually have access to their credit score of some sort, but likely don't even know that it's free to them.

Douglass:Absolutely. And speaking of the FICO scores, let's talk about FICO Score 9, which is the most recent iteration of the FICO score, and what goes into that.

Hamilton:As I mentioned, FICO is essentially the standard for all intents and purposes, but that model has changed over time to account for updating, or better assessing, credit risk.

Douglass:True.

Hamilton:And one of the changes to FICO Score 9 is accounting for two things: a thin file, and collections. A thin file is you're starting getting credit. Maybe you're young, a college student, and you need some sort of credit history to establish a credit score. FICO Score 9 better accounts for those thin credit score histories.

The second part is removing some various collections that have been paid, so it gives some leniency to people that may have gone through a tough financial situation and had an account go into collections. Your credit score may improve faster based upon what's happening with FICO Score 9.

Douglass:Absolutely. That makes sense. And for more information about credit scores, credit, debt management, check us out at fool.com/credit-cards. We've got a wealth of free information, including copies of our credit card guides, which have been put together by staff here.

And our picks for the best credit cards of 2017. People have a lot of different life circumstances, but there's a card there for a lot of different things, whether you're looking at cash back, whether you've got excellent credit or good credit, whether you're looking for a balance transfer, or that sort of thing. We've got all that information there.

Again, check us out at fool.com/credit-cards. Nathan, thanks much.

Hamilton:Thank you.

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