What is FICO Credit Score?

Payment history is the major factor and occupies 35% of the credit score.

Define FICO Credit Score

FICO stands for Fair Issac Corporation. FICO credit score is a credit score issued by Fair Issac Corporation. Lenders, banks and other financial institutions evaluates the borrowers FICO scores along with details on credit reports of the borrowers to assess the credit risk to determine whether to extend credit or not. It is one of the leading tools used by lenders to determine the credit worthiness of the borrower.

FICO scores are used in the majority of the mortgage application decisions in the United States of America. They are currently used in 90% of the decisions.

Individual can improve their FICO score by paying their bills on time, having different types of credit and using less than 30% of the available credit. FICO scores range from 300 to 850. Scores in the range of 670-739 are considered good. This score is favorable for most lenders. Borrowers with credit score between 580-669 will find it difficult to get finance at attractive rates. Borrowers with FICO score above 800 is considered exceptional. Lender do take into account of FICO score, but they also look into other details like income, type of the credit used and how long the borrower has been at its current job.

How does FICO Credit Score calculated?

The methodology of FICO is also updated from time to time. Most recent version, FICO Score 10 Suite was announced in 2020.

FICO scores take into consideration five major factors. These are payment history, types of credit used, new credit accounts, length of credit history and the current level of indebtedness. Payment history is the major factor and occupies 35% of the credit score. It basically shows if the individual is paying their dues on time. Total amount owed is the second major factor and occupies 30% of the credit score. It is basically the percentage of credit available of the individual which is being used. Length of credit history occupies 15%.

Long credit histories are considered less risky. Type of credit occupies 10%. It shows if the individual has any mix of installment credit such as car loans or mortgage loans. New credit occupies balance 10%. It shows how many new account has the individual opened.

Harish Yadav

Harish Yadav is the regular reader of different newspapers and articles and writes about Financing and Investments. He also often writes for breaking news.

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