What Does FICO Mean To You?
Although it may not be a term you're familiar with, the term
FICO can be a determining factor as to whether or not you
qualify for a credit or loan. But what is FICO, and how does it
affect you when it comes to your creditworthiness?
The acronym FICO actually stands for Fair Isaac Company, which
was the company that originally created a mathematical model for
the credit reporting company Experian. FICO was designed as a
tool that could be used by creditors to evaluate the potential
risks involved in lending money to consumers. In reality, there
are other similar models that have been developed by other
credit bureaus, but all of their results are referred to by the
industry as FICO scores.
FICO scores are calculated by examining the answers to a number
questions, based on the information in your credit and on your
income-to-debt ratio. The answers to each question carry a
certain number of points, and when all the answers are added up,
that number represents your FICO score.
Your FICO score will depend upon such things as how long you've
lived at your current address, what your job is, your
income-to-debt ratio, how often you've been late on payments,
how much debt you currently have, the amount of credit you're
using already, and the length of time you've had your credit
established.
The most heavily weighted factors in determining your FICO score
will be the current balances on your credit cards, having either
too few or too many revolving accounts, the number of accounts
you have that carry balances, how many accounts you've opened
over the past twelve months, the length of time you've had your
accounts, your past due accounts, and the number of credit
inquiries that have been made in your behalf.
A good FICO score would be at least 650. If your score is 620 or
less, you'll be considered a risky candidate for a loan or
credit card by potential creditors. A score between 620 and 650
will put you into a "possible" category, which means that you
may need to provide more information to the lender before you'll
be approved for credit. A FICO score of more than 650 will put
you into the "go-ahead" category, since it will show potential
lenders that you've been a good credit risk in the past.
The higher your FICO number, the better, of course, since you
will begin to get better interest rates on loans the closer your
FICO number gets to 850.
It may not be a well-known number, but your FICO score can be
important to your financial well-being.
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