According to their credit history, a consumer’s FICO score is a three-digit figure, normally ranging from 300 to 850, that shows lenders how likely they are to return money borrowed from them.
What Is the Meaning of a FICO Score?
Credit scores such as FICO scores are one type of credit score.
The FICO score was first created in 1989 by the Fair Isaac Corporation, which gave it its name. Although the phrases “credit score” and “FICO score” are sometimes used interchangeably, there are different types of credit ratings available.
What Is the Range of FICO Credit Scores?
The majority of FICO scores are in the range of 300 to 850, with a higher number indicating better financial standing.
Also, available are industry-specific ratings for credit cards and auto loans, with ranges ranging between 250 and 900 points.
What Factors Go Into Determining a FICO Score?
In order to generate a credit score, the organization uses a proprietary algorithm to the information included in your credit reports.
When it comes to credit reports, the three credit bureaus that generate them — Equifax, Experian, and TransUnion — frequently provide data that is somewhat different from one another. As a result, depending on which bureau’s data was used, your final score may differ.
What does a Good FICO Score Look Like?
In general, credit ratings ranging from 690 to 719 are regarded to be good. However, each lender or credit card issuer has the authority to choose the minimum credit score required to qualify for a certain line of credit.
A good credit score, according to the FICO company, is between 670 and 739.
What Is the Significance of a FICO Score? What Is the Purpose of a FICO Score?
If you apply for a loan or a credit card, creditors will frequently use your FICO score to determine whether to accept your application. You may use it to paint a picture of how you’ve dealt with credit in the past. Also taken into consideration is your income and previous debt commitments, which they examine to see if you have the financial means to pay them back.
A credit score in the good or exceptional level can open up additional options for you and allow you to take advantage of cheaper interest rates.
Utility providers and/or landlords may also use your credit score to decide how much of a deposit you’ll be required to put down or if you’ll be approved as a renter.
What Factors Influence Your FICO Score?
Despite the fact that FICO does not disclose its scoring algorithm, it provides important guidance on the aspects that influence scores. As you can see, paying your bills on time and keeping your balances low account for almost two-thirds of your overall credit score.
Payment History (Which Accounts for 35% of Your Total Score):
Late payments, collections accounts, and bankruptcy can all have a negative impact on your credit score.
The Amount of Debt Owed in Relation to Available Credit (30 Percent):
This indicates how much of your available credit you are currently utilizing – the less you use, the higher your credit score will be.
Age of Credit (15 Percent) Consists of the Following Factors:
This relates to the length of time you’ve had credit, as well as the average age of all of your credit accounts combined.
Recent Credit Application Submissions (10 Percent):
When you apply for new credit, you may be subjected to a so-called “hard inquiry,” which can lower your credit score for up to six months. That’s why it’s critical to thoroughly investigate credit card products and eligibility conditions before applying for a credit card.
If You Have More Than One Sort of Credit (10 Percent), You Must Indicate Which Ones.
Being in possession of both installment loans (those with fixed payments, such as a car loan or a mortgage) and revolving credit (such as a credit card) can be beneficial to your credit score.
The Difference Between a FICO Score and a Credit Score
When it comes to credit ratings, FICO scores are one sort of score (Vantage Score is another), but you might have several versions of a FICO score. FICO 8, which was launched in 2009, is the most extensively used version, whereas FICO 9 is the most recent version.
Mortgage lenders usually employ FICO score versions that are many years old. The FICO 10 and FICO 10T are the most recent versions of the FICO score.
Another newer form, UltraFICO, is intended for persons who are new to credit or who are wanting to restore their credit. It employs the same 300-850 scale as FICO, but it calculates a score based on activity in bank accounts rather than credit card transactions.
FICO Vs. Vantage score: Which Is Better?
Developed in collaboration by the three major credit agencies, Vantage Score was first made available in 2006. Consumers are familiar with FICO, and bankers are familiar with Vantage Score; nevertheless, Vantage Score is gaining appeal with both consumers and lenders alike.
According to a survey by Vantage Score, more than 2,500 lenders used 12.3 billion of its credit ratings between July 2018 and June 2019, according to the findings.
Approximately 90 percent of lending decisions, according to FICO, are based on credit scores, and they are supported by the law in one important area: house mortgages. For the time being, it is the only credit risk evaluation instrument that has been approved for use by government-sponsored businesses such as Fannie Mae and Freddie Mac, among others.
The scores may be used in conjunction with one another. Using Vantage Score to identify which clients should receive preapproval offers, a financial institution may then utilize FICO ratings to determine which applications are authorized and at what interest rate.
What Is the Process of Obtaining a FICO Score?
The FICO score on your credit card statement is something you may already have access to for free. Several credit card issuers, such as Bank of America, provide users with free FICO ratings on a monthly basis; however, Discover has gone one step further and made FICO scores available to anyone who wants them.
The company’s own website offers the option to purchase a FICO score, which is particularly useful if you want something other than the free versions provided by your credit card.
The Vantage Score credit score, which is the major competitor of FICO, is available for free on a number of personal financial websites, including NerdWallet. You now have another option for keeping track of your progress: Because both Vantage Scores and FICO scores are based on the same characteristics and use the same data from the credit bureaus, they tend to be very comparable to one another.
A Good FICO Score Is One That Is Between 700 and 800.
Every lender determines what constitutes a good FICO Score and how they will use a FICO Score and other information during the loan approval process on their own terms and conditions.
In general, lenders consider credit scores greater than 670 to be indicative of good creditworthiness. Generally speaking, the higher your credit score, the lower the risk, and the more likely it is that creditors will lend to you.
To assist creditors in making lending decisions, there are general score ranges that are accepted by the industry. These ranges can also be used as targets for you to strive for in the future.
It is possible to enhance your score over time. Because the information contained in your credit reports is always changing, your FICO® Score is likewise updated on a regular basis as well.
What Is the Difference Between FICO Scores?
In Order to Better Satisfy the Needs of Today’s Credit Consumers.
Credit is used in a very different way today than it was 30 years ago. FICO Scores are updated on a regular basis to ensure that they are as up-to-date as possible.
In Order to Meet the Requirements of Various Sorts of Lenders.
When it comes to determining your creditworthiness, auto lenders and credit card issuers take a slightly different approach. FICO developed industry-specific scores to assist these lenders in making better judgments and providing better service to their clients.