4 Common Types Of FICO
Prior to Fair Isaac developing the credit scores, most lenders
use to actually manually examine each applicants credit report
and credit history to determine whether or not to extend credit.
This manual process was highly time consuming and sometimes
resulted in large human errors.
The credit scoring formula was developed to help lenders make
better judgments more quickly thus allowing them to service
customers better. In general, the credit scoring formula looks
at lots of variables such as mortgage debt, credit card debt,
total debt to income ratio, other types of debt, number of late
payments and various other variables.
One thing most people looking for a loan fail to realize is that
depending on the type of loan you are applying for, the lender
may use a different version of the FICO credit score. Lenders
use various versions of the Fair Isaac FICO scores to better
manage their risk. Since certain loans have different risks to a
lender, using a different FICO score formulas allows lenders to
measure the risk that is most appropriate for the loan being
applied for. For instance, a motorcycle loan may have different
risk than a mortgage loan to a lender, thus the lender would use
a different FICO score formula. The goal of this article is to
provide an understanding of the different types of credit scores
you may see when applying for credit.
Classic FICO