Fico Credit Scoring
50What is a FICO score?
FICO (Fair Isaac Company) is a credit scoring system that many lenders use in determining the risks of lending you money or offering credit. Similar to a credit score, your FICO score is calculated using various credit and financial information. The main difference between the two is that credit scores are generated by a credit bureau and FICO score is generated from Fair Isaac CO. Credit scores range from 500-990 and a FICO score ranges from 350-850. There are three FICO scores available, one from each of the three major credit bureaus (CRA-Credit Reporting Agencies). The credit bureau forwards information gathered from your creditors to FICO, which then calculates a score.
FICO score vs. Credit score
Low FICO = High Interest Rates
The better your credit is the higher your FICO is, which lowers your interest rates. It is estimated that about 90% of lenders/creditors look at FICO scores to determine your credit limits, loan amounts and interest rates. Low risk scores would be anything over 650, if you fall between 620-650 you are in a "grey" area. Anyone considering purchasing a car, home or any other large purchase should try to raise their score above 650.
Components of a FICO score
- 35% of the score is based on your payment history. This portion is rated highly because lenders want to see your payment patterns. Mainly they want to see if you make payments on time. Also, this portion would show collections, bankruptcies, etc.
- 30% of the score is based on amount owed. This would let lenders know how much you owe on car notes, mortgages and if any credit cards are at their limit.
- 15% of the score is based on how long you've had credit. Typically, the longer you have had credit the better it is for your overall score. Lenders would consider your future actions based on your history.
- 10% of the score is based on the number of inquiries on your report. Having many inquiries would suggest you are in some form of financial hardship. Every time you apply for a credit card or loan, an inquiry is put on your credit report. FICO scores only count inquiries from the past year.
- 10% of the score is based on your current credit and the type of credit it is.
- Fair Isaac
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Amber Wing 4 years ago
This article is full of inaccuracies. FICO score is not SIMILAR to a credit score, it IS a credit score - the most widely used credit score, preferred by most lenders over the generic credit scores offered by the bureaus. Fair Isaac Corporation owns the mathematical algorithm that defines the score, but the actual calculation is done on the bureau-side where the data resides. FIC is not legally allowed to have data with personal information because it would violate the FCRA.