A FICO score is a credit score developed by the Fair Isaac Corporation (FICO). Lenders utilize borrowers’ FICO scores and other information from their credit reports to evaluate credit risk and decide whether to provide credit.
FICO scores consider information from five categories to assess a borrower’s creditworthiness: payment history, current debt level, credit types, credit history length, and new credit accounts.
How FICO Score Work?
FICO is a big company that makes software for analyzing data. They offer products and services to businesses and people. They are famous for creating credit scores that banks use to make decisions about loans and credit cards.
Many lenders in the U.S. use FICO scores to make credit decisions. Even if borrowers try to explain negative items in their credit report, having a low score often leads to loan denials.
Score Ranges
The Fair Isaac Corporation score can range from 300 to 850. Typically, a score between 670 and 739 is seen as “good” by lenders, while scores between 580 and 669 may make it harder to secure financing with low interest rates.
Lenders consider various factors, including a borrower’s Fair Isaac Corporation score, income, job tenure, and the type of credit requested, to assess creditworthiness. So, How to Improve Your FICO Score.
Calculating FICO Scores
The FICO considers each category differently for each person to calculate credit scores. Generally, payment history accounts for 35% of the score, accounts owed for 30%, length of credit history for 15%, new credit for 10%, and credit mix for 10%.
Conclusion
The FICO Score is a popular tool used to assess a borrower’s creditworthiness. Many lenders in the U.S. rely on FICO Scores to evaluate mortgage applications. Although a low score may seem disheartening, you can enhance your FICO score by borrowing responsibly and ensuring timely payments.