As you must know by now, plenty of information is collected on everyone by various organizations. While you may think of FICO credit scores as confidential information, it’s the type of information that any employer or landlord can access if they have your social security number. Credit scores are so important they can determine whether or not you qualify for a conventional loan. Read on to have a better understanding of the FICO credit scores.
What Does FICO Mean?
The name FICO is derived from the company’s primary name, the Fair Isaac Co. It was frequently abbreviated to FICO and eventually became the company’s official brand name several years ago.
The FICO credit score model, developed by the Fair Isaac Corporation is currently the most extensively used method to determine the borrower’s creditworthiness.
What is a ‘FICO Score’?
A FICO score is a category of credit score developed by the Fair Isaac Corporation. Lenders use FICO scores of the borrowers along with various other information on borrowers’ credit reports to evaluate credit risk and find out whether to extend credit.
A FICO score is a category of credit score developed by the Fair Isaac Corporation. Lenders use FICO scores of the borrowers along with various other information on borrowers’ credit reports to evaluate credit risk and find out whether to extend credit. FICO scores involve factors including payment history, length of credit history, types of credit used, the current level of indebtedness, and new credit accounts to ascertain creditworthiness.
How FICO Credit Scores Are Calculated
The five main components that are used to calculate your FICO scores and impact your score individually include:
- Payment history (35% of the FICO score)
- Debt/amounts owed (30%)
- Age of credit history (15%)
- New credit/inquiries (10%)
- Diverse accounts/types of credit (10%)
All these components are also taken into account during calculation in other credit score models, so it can be safely assumed that if you own a good FICO score, you possibly have a powerful score with other models as well. However, for some individuals, the scaling of these components can vary.
What Is a Good FICO Score?
The FICO scores mostly extend from 300 to 850, with the higher figure symbolizing less risk to the lending agencies or insurance firms. Consumers with superior FICO scores, normally around 760 FICO score range or above, considering that every lender has contrasting standards, are likely to qualify for the good rates during the time of borrowing, along with the perfect discounts on insurance.
What FICO Score Numbers Stand For
Your FICO score essentially determines what type of loan you qualify for. By having easy access to cash, you can plan the future with confidence, knowing you have the option. If you have poor credit you can still qualify for small loans as long as you have a steady source of income. Otherwise, you may want to visit a credit counselor to help you through your financial struggles.
A FICO score consists of three digits between 300 and 850. In order to have what’s considered “good” credit, you need a score of at least 680. The top tier that puts you in the best standing with traditional financial institutions is a score of 720-850. This credit score range is most likely where you need to be to qualify for an average 30-year mortgage loan. If your score is in the range of 680-719 you can still qualify for large loans at low-interest rates.
A credit score in the 630-679 range is known as “fair credit,” which still allows access to certain loans but is also a threshold for rejection due to debt. The next level down is the 550-629 range called “subprime credit,” which prevents access to large loans, especially home loans. The only thing worse is “poor credit” in the 300-549 range.
Kimmy Burgess is the Manager of Cash in a Snap, which helps clients get connected to its large network of reputed lenders to get an instant cash advance online when they need it. Kimmy has over 20+ years’ experience in Administrative Management, with many years in the lending industry. Her expertise includes customer service, client services and other functions in the payday lending business. She has also spent time in the mortgage industry prior to her move into the payday lending field.