Why You Need to Know Your FICO Score

FICO stands for the Fair Isaac Corporation, the developer of the scoring system which bears its name. The system ranks credit score according to a range between 400(worst) and 800(best) based on a number of key criteria supplied by credit companies and their applicants. These scores have become standard determining factors in approving or rejecting credit cards or loans for consumers. Whenever possible you should take steps to obtain your FICO score.

Factors such as payment history, total debt, total credit lines and debt ratios will affect your score. Late or delinquent payments are the most significant factor in lowering your score. To a lesser degree, a high or increasing debt load will be an important factor. Also important is the number of credit cards and/or credit lines the individual has. A low debt load relative to total credit lines will improve the score while “maxing out” on all credit cards will lower the score. Finally the number of credit inquiries, although not critical, can also affect the score. It is important to note that inquiries related to new borrowing are more negative than “maintenance” inquiries which are routinely obtained on existing credit cards holders.

Scores below the 600 range are considered generally poor. Score above 700 are generally considered good or excellent. A range between 600-700 is mediocre and will the lender will usually ผลบอลสด rely on other factors to make the credit decision. While there are other credit criteria besides the FICO score, lenders can quickly and easily assess and compartmentalize borrowers using this method.

Most lenders, including banks, mortgage companies and credit card issuers, will not only use the FICO score for the loan decision, but will use it to determine interest rate as well. Obviously the higher the credit score, the more attractive the interest rate you will get. However, having a good score does not guarantee approval or good rates. Market conditions, the current demand for loans, the general economy and other factors have a strong influence on the willingness of lenders to lend and at what rate.

In the last 20 to 30 years banking and lending have gone through dramatic changes with regard to underwriting techniques. Bankers used to work with paper files and incomplete credit reports with sketchy information. Technology and the internet have led to huge efficiencies with modern financial modeling and instant and accurate information. This has made the FICO score a staple in the underwriting process.

Thus the FICO score continues to be a key tool for lenders which will only become more refined and effective down the road. While FICO does not constitute 100% of the credit decision, it definitely assists in the first round of screening when examining mass numbers of applications.

Leave a Reply

Your email address will not be published. Required fields are marked *