What Is Your FICO Score?
If it’s your first time asking for a loan, you must be wondering, “what is FICO score?”It is a score used by the lending institution to determine how likely you will pay back your loan. Banks use this information as a risk assessment tool. FICO score plays a very important role in your life because it determines how much loan you are eligible for and your payback period. Sometimes, your monthly installments will depend on your FICO score.
You can think of the FICO score as a summary of your credit score represented by three digits. The three main credit bureaus are TransUnion, Experian, and Equifax, and the credit scoring models they use are VantageScore and FICO® Score.
1. How Is Your FICO Score Calculated?
The FICO score is calculated by analyzing different data types in your credit report. This data is divided into 5 categories, and each of these categories has a percentage contribution in determining your FICO score.
1. Payment History 35%
2. Amounts Owned 30%
3. Length of Credit History 15%
4. New Credit 10%
5. Credit Mix 10%
In a way, you control all these factors mentioned above. If you want a high credit score, make sure your payment history is up to the mark by paying back your money on time. The second major part of a FICO report is the amount owed. It is the total amount of credit or loan you are using compared to your credit limit. Ensure you never exceed your credit limit; otherwise, lending institutes will consider you a bad investment.
2. What Are FICO Score Ranges?
FICO scores can be broken down into 5 ranges, with 800 being the highest, and 300 and below being poor. Here is a list of FICO score ranges to help you understand.
Ø Very poor: 300 to 579
Ø Fair: 580 to 669
Ø Good: 670 to 739
Ø Very good: 740 to 799
Ø Exceptional: 800 to 850
Lending institutes may check other credit information
Since the FICO score is an analysis of your credit history, it does not give a clear picture of your likelihood of returning loans. That is why the FICO score is not the only judgment criterion for a lending institute. Hence, you have to keep all these factors in mind.
Ø Your employment history
Ø Current salary
Ø The amount of credit you are requesting
FICO score is one of the criteria that help you secure a loan. If you want to apply for a hefty loan, make sure the categories mentioned above are up to mark. Most times, the credit lender will also look into other factors, but they aren’t as credible as your FICO score.