What Is a FICO Score?

A FICO score ranges from 300 to 850 and is used by lenders to assess borrowers' creditworthiness. A FICO score is a type of 澳洲幸运5官方开奖结果体彩网:credit score based ♍on information in a borrower's credit report that lenders use to assess credit risk and determine whether to extend credit. The higher the FICO score, the more likely a borrower will repay their debts on time.

Created by the Fair Isaac Corporation, FICO scores consider data in five areas: payment history, the current level of indebtedness, types of credit used, length of credit history, and new credit accounts. Discover how FICO scores work, how they're calculated, and 澳洲幸运5官方开奖结果体彩网:how you can im♔prove y꧑our FICO credit score.

How FICO Scores Work

FICO is a major analytics software company that provides products and services to both businesses and consumers. The company is best known for producing the most widely used 澳洲幸运5官方开奖结果体彩网:consumer credit scores that financial institutions use in deciding whether to lend money or i♏ssue credit.

FICO scores are used in many credit decisions made in the U.S. Although borrowers can explain negative items in their credit report, many lenders will deny 澳洲幸运5官方开奖结果体彩网:loans to people with low 🐓FICO scores.

FICO Score Ranges

The overall FICO score range is between 300 and 850. In general, credit scores in the 670 to 739 range indicate a “good” credit history, and most lenders will consider this score favorable. In contrast, borrowers in the 580 to 669 range may find it difficult to get financing at attractive rates. 

To determine creditworthiness, 🤡lenders take a borrower’s FICO score into account, but they also consider other details, such as income, how long the boಌrrower has been at their job, and the type of credit requested.

How to Improve Your FICO Score

Achieving a high FICO score requires having a mix of credit accounts and maintaining an excellent payment history. Staying well below your credit limits also helps your score. The ideal 澳洲幸运5官方开奖结果体彩网:credit utilization ratio is below 30%.

Maxing out credit cards, paying late, and applying for new credit frequently are all things that lower FICO scores. You can 澳洲幸运5官方开奖结果体彩网:check your credit regularly toensure your credit report is free of errors. By law, you are entitled to one free credit report each year from major credit bureaus.

Calculating FICO Scores

To 澳洲幸运5官方开奖结果体彩网:determine credit scores, the FICO weighs each category differently for each individual. However, in general, payment history is 35% of the score, accounts owed is 30%, length of credit history is 15%, new credit is 10%, and credit mix is 10%.

Payment History (35%)

Payment history refers to whether an individual pays their credit accounts on time. Credit reports show the payments submitted for each line of credit, and the reports detail bankruptcy or collection items alo🌼ng with any late or missed payments.

Accounts Owed (30%)

Accounts owed refers to the amount of money an individual owes. Having a lot of debt does not necessarily equate to 澳洲幸运5官方开奖结果体彩网:low credit scores. Rather, FICO considers the ratio of money owed to the amount of credit available. To illustrate, an individual who owes $10,000 but has all of their lines of 澳洲幸运5官方开奖结果体彩网:credit fully extended and all of their credit cards maxed out may have a lower 澳洲幸运5官方开奖结果体彩网:credit score than an individual who owes $100,000 but is not close to the limit on any ဣo👍f their accounts.

Length of Credit History (15%)

As a general rule of thumb, the longer an individual has had credit, the better their score. However, with favorable scores in the other categories, even someone with a 澳洲幸运5官方开奖结果体彩网:short credit history c🌊an have a good score. FICO score൩s take into account how long the oldest account has been open, the ag🦄e of the newest account, and the overall average.

Credit Mix (10%)

澳洲幸运5官方开奖结果体彩网:Credit mix is the variety of accounts. To obtain high credit score🎃s, individuals need a strong mix of retail accounts, credit cards, installment loans (such as signature🍸 loans or vehicle loans), and mortgages.

New Credit (10%)

澳洲幸运5官方开奖结果体彩网:New credit refers to recently opened accounts. When a borrower has opened many new accounts in a short period, it can indicate credit risk and lower 澳洲幸运5官方开奖结果体彩网:their score.

FICO Score vs. VantageScore

The main alternative to the FICO Score is VantageScore, a credit scoring method jointly developed by the three main credit bureaus in 2006. Like FICO Scores, the VantageScore rates an individual's creditworthiness on a scale of 300 to 850, based on factors like payment history, credit mix, and credit utilization.

However, the VantageScore attaches different weights to those factors, so your VantageScore may be slightly different from your FICO Score. They also have different scoring criteria: FICO requires at least one tradeline older than six months in order to calculate a score and at least one tradeline with activity over the last six months. In contrast, VantageScore requires only one tradeline with no age requirement.

FICO Versions

Various versions of FICO exist because the company has periodically updated its calculation methods since introducing its first scoring methodology in 1989. Each new version is made available to lenders, but it is up to them to determine if and when to implement the upgrade.

The most widely used version is still FICO Score 8, even though it has been followed by 澳洲幸运5官方开奖结🔥果体彩网:FICO Score 9 and FICO Score 10 Suite. FICO Score 9 was introduced in 2016, with adjustments to the treatment of medical collection accounts, increased sensitivity to rental history, and a more forgiving approach to fully paid third-party collections.

It did not surpass FICO Score 8 in popularity. However, the incorporation of trended credit bureau data in FICO Score 10T (part of FICO Score 10 Suite, announced on Jan. 23, 2020) might cause it to supplant FICO Score 8 in the future.

According to FICO, Score 8 is consistent with previous versions, but there are several specific features that make it a more predictive score than prior versions. Like all prior FICO score systems, FICO Score 🌞8 attempts to convey how responsibly a borrower manages debt. Scores tend to be higher for those who pay their bills on time, keep low credit card balances, and only open new accounts for targeted purchases.

Conversely, lower scores are attributed to🌺 those who are frequent𒉰ly delinquent or who use a significant amount of their credit. Scores do not include collection accounts in which the original balance is less than $100.

The change with FICO Score 8 included increased sensitivity to highly utilized credit cards—meaning that low💛 credit card balances on active cards can more positively influence a borrower’s score. It also treats isolated late payments more judiciously than past versio🍌ns.

FICO Score 8 is more forgiving if a late payment is an isolated event and other accounts are in good standing, and it divides consumers into more categories to provide a better statistical representation of risk. The primary purpose of this change was to keep 澳ꦫ洲幸运5官方开奖结果体彩网:borrowers with little to no ꦜcredit history from being graded on the same curve as those with longer credit histories.

The Bottom Line

The FICO Score is 澳洲幸运5官方开奖结果体彩网:one of the leading tools for measuring the creditworthiness of a borrower. Most lenders in the U.S. use FICO Scores when making a decision on mortgage applications. While a low score can be discouraging, you can improve your FICO score by borrowing responsibly and making payments on time.