What Is a FICO Score?
A FICO score is a credit score made by the Fair Isaac Corporation (FICO). Lenders use borrowers’ FICO scores along with other details on borrowers’ credit reports to evaluate credit risk and determine whether to extend credit.
FICO scores take into account data in five areas to ascertain creditworthiness such as payment history, the current level of liability, types of credit used, length of credit history, and new credit accounts.
Understanding FICO Scores
FICO is an eminent analytics software firm that provides products and services to both businesses and consumers. They produce the generally used consumer credit scores of the financial institutions in determining to lend money or issue credit.
The general FICO score range is between 300 and 850. Generally, scores in the 670 to 739 range indicate a “good” credit background, and most lenders consider the score acceptable. Whereas, borrowers in the 580 to 669 range may find it hard to obtain finance at appealing rates.
To ascertain creditworthiness, lenders consider a borrower’s FICO score, but they also consider other details, such as income, how long has borrower been at their job, and the type of credit requested.
FICO scores are used in more than 90% of the credit verdicts made in the U.S. Borrowers can describe negative items in their credit report. The fact remains that having a low FICO score is a deal-breaker with various lenders.
Various lenders maintain rigorous FICO minimums for approval, chiefly in the mortgage industry. One point below this entry results in a denial. Therefore, strong evidence exists that borrowers should prioritize FICO above all bureaus when trying to build or improve credit.
Achieving a good FICO score requires having a mix of credit accounts and maintaining an excellent payment history. Borrowers should also show moderation by keeping the credit card balances well below the limits.
Limiting out credit cards, paying late, and applying for new credit irregularly are all things that lower FICO scores. A good FICO score can play a role in so many credit decisions. It may also be worth investing in a good credit monitoring service to keep information safe.
Calculating FICO Scores
Every FICO Score is unique, just like every person. It is calculated based on five categories, but some people might differ on the importance of these categories. For example, scores for people who have not been using credit for long will be calculated differently than those with a longer credit history.
Also, the information in the credit report changes so does the assessment of these factors in determining the FICO Score.
The credit report and FICO Score evolve regularly. Because of this, it is not possible to ascertain the exact impact of a single factor in how the FICO Score is calculated without looking at the entire report.
The levels of significance shown in the FICO Score charts are for the general population and may vary for different credit profiles.