About FICO Scores
Most of you know what credit scores are. Did you know that most lenders consider FICO scores when it comes to lending? In this post, we will learn more about FICO scores and their importance.
What Is A FICO Score?
FICO stands for Fair Isaac Corp. This was introduced in 1989. This type of score is widely used by all the lenders in the mortgage industry to qualify an individual based on his or her credit score.
How Does FICO Credit Score Work?
The organization applies an exclusive equation to the information in your credit reports to deliver a score.
Regularly, the three credit departments that make your credit reports Equifax, Experian, and TransUnion have marginally various information from each other.
So your score might differ contingent upon which authority’s information was utilized.
What Influences Your FICO Credit Score?
No one knows the exact algorithm behind the FICO scoring system. However, they provide the guidelines based on which your FICO scores could be influenced.
While FICO doesn’t uncover its scoring recipe, it gives valuable rules about the elements that matter for scores.
Generally, paying your debts on time and keeping your credits lines below a certain level will help you keep a healthy FICO score.
Repayment history: Always make sure all your payments on the debts are on or before the due date to keep your FICO scores above par.
Failing to miss your payment or any accounts being in collects can really have a huge negative impact on your scores.
Utilization of your credit: This is the amount of accessible credit you are utilizing.
If you are maxing out your credit cards every month, your credit score could have a negative impact. Less utilization of the credit limit will have better chances of improving your FICO credit score.
Period of credit: This alludes to how long you’ve had credit and the normal age of your credit accounts.
Late applications for credit (10%): When you apply for a loan or credit card the lender or the credit card company will have a hard credit check done.
Applying for the loan or credit cards regularly would also have a negative impact on your FICO scores, as every time you apply there would be a hard inquiry on credit and your scores are dropped by a few points after every hard check.
Significance Of FICO Scores And Its Uses
To approve any loan or credit the lenders or banks use FICO scores to determine your credibility.
The FICO scores show your credit history and help the bank or the lender to understand how you have been handling your credit in the past.
They check your FICO scores to make sure you have the means and capability to repay the loan.
Your FICO score also puts you in a situation where you might get good deals when it comes to loans or credit. If your FICO scores are good to excellent, you will get a better interest rate with better loan terms.
Many landlords will use the FICO scores to determine if you are the right tenant for their house.
Also, many utility companies would like to check your credit score before they provide you with their services.
What Is A Good FICO Score?
According to FICO Company, a decent credit score is 670–739. However, the lending standard generally has a good FICO score range of 690–720.
Conclusion
So, what are FICO scores? FICO scores are one of the most important aspects of life when it comes to applying for a loan or credit.
Every individual at least once in life would require lending services at some point in life.
Having knowledge about the FICO score can help you maintain your credit score and be prepared for the time when you actually need the loan or credit.
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