FICO vs Credit Score - What's The Difference
FICO scores have been used to determine a person’s credit risk. Today, 90% of the top lending institutes check FICO scores to determine whether the person is fit for credit approval. Chances are when you apply for a bank loan, mortgage, or car financing, your bank would inspect your FICO report.
In general, the FICO score is an algorithm that decides whether you can return the borrowed amount on time. This algorithm makes use of your credit report and uses statistical analysis to create your pattern of credit payments.
Ever since FICO scores were introduced 25 years ago, people have been confused. The new generation is mostly unaware of what matters most. Is it the credit card or FICO score? To answer this, we have drafted this blog to help you understand the difference between credit score and FICO score and how to improve them.
What's The Difference?
While FICO is an algorithm, your credit card score is an assessment of your credit worthiness. Credit card scores help lending institutes decide whether they should lend you money or not. It is a conventional assessment based on your credit return ratio.
Usually, credit card scores lie in the range of 300 – 850.The higher this number, the greater would be your chances of receiving a loan. A low credit score would mean that you did not settle your credit or failed to pay on time.
Credit card scores have a high chance of being manipulated by the customer. At the same time, FICO would analyze your credit history and map out your paying pattern. FICO is a robust algorithm that minimizes human interaction creating an unbiased environment.
How Do I Improve My FICO Score?
Now that you understood how important FICO scores are, you are probably wondering how to improve them. For this, you need to understand that there is no easy way to do this. People who claim to improve your FICO scores are unreliable, and any tempering can backfire into legal action.
To improve your FICO score the right way, you need to do the following.
Pay Your Bills On time
Your FICO score depends on your credit history. If you have taken a loan, make sure to pay back on the exact date. Any late payment can affect your credit history and result in a low FICO score. The first step to paying your loan on time is to take out a percentage of your earning and keep it aside for loan repayment. This would ensure that your bills are paid on time without utilizing your entire income.
Reduce Your Debt Amount
Paying on time is one thing; however, if you have a high debt amount, your payments are bound to be late. The best practice to implement in this situation is to pay back a hefty amount of instantaneously. This would boost your FICO score and reduce your debt amount.
Review Your Credit Report
Sometimes credit companies fail to mention all your payback transactions. When this report is forwarded for FICO analysis, your scores comeback insignificant. It is best to review your credit report and report any missing or unexplained amount to all the credit agencies.