Everything You Need to Know About FICO Scores

    By
    Sachin Khanna
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    FICO score is the standard credit score that assists about 90% of lending institutions in the US to base their decision regarding the creditworthiness of a borrower. 

    In order to keep your credit score or FICO score impressive, you need to understand the mechanism of the and practices that help to improve it. 

    FICO score- How does it work?

    To determine if you should give money to borrowers, lending institutions examine and assess FICO scores. FICO is a significant analytics software provider offering enterprises goods and services. You, as a borrower, can make an attempt to explain the negative items mentioned in your credit reports. But, in case your FICO score is below par, certain institutions will step back from providing you with a loan and issue credit. Read along to find out how to calculate and maintain FICO score.

    How does one calculate the FICO score?

    FICO determines the credit score by weighing each category mentioned below differently for each individual. The weightage given to the five deciding factors of FICO scores are as follows:

    • Payment History (35%)
    • Accounts Owned (30%)
    • Length of Credit History( 15%)
    • Credit Mix (10%)
    • New Credit (10%)
    1. Payment History: An individual’s payment history can help determine his FICO score. Lending institutions analyze an individual’s payment history to evaluate if they have made timely payments to their credit account. Information about missed or late payments, bankruptcy or collection cases, and payments made for each credit line are all reflected in credit reports.
    2. Accounts owned: The term “accounts owed” describes how much money a person owes. Low credit scores are not always associated with high debt levels. Yet, FICO considers the ratio of debt to available credit.
    3. Length of credit history: The longer the span of time someone has the credit, the higher their FICO score. Having good scores in the other categories can also ensure a good FICO score even if they had credit for a shorter period. FICO ratings consider the age of the newest account, the length of time the oldest account has been open, and the overall average.
    4. Credit Mix: The mix of accounts is known as credit. A solid combination of retail accounts, credit cards, installment loans (such as auto or signature loans), and mortgages is necessary to have excellent credit scores. Make sure that you maintain an account of your credit history. 
    5. New Credit: New accounts are referred to as having new credit. A borrower’s score is lowered, and risk is indicated if they quickly open numerous new accounts. Hence, refrain from frequently opening new accounts to maintain your credit score. 

    Range of FICO score

    Understanding the range of  FICO score is important. The range falls between values 350 to 800. Scores ranging between  670 to 739 are regarded as good scores. This score is considered favorable and indicates adequate credit history. However, borrowers falling between 580 and 669 may find it challenging to acquire financing at attractive rates.

    FICO produces different consumer credit score kinds. The company creates industry-specific credit scores for credit card issuers and auto lenders in addition to “base” FICO Scores that lenders across several industries can utilize. 

    Ways to improve your FICO score

    Refrain from maxing your credit cards, paying late, and frequently applying for credit to avoid lowering your FICO score. Having an impressive payment history and other factors are crucial for improving your FICO Score.

    • Make timely payments: 

    Wish to improve your FICO as well as VantageScore? 

    Make paying your bills on time a sincere practice.  A good impression on the lending institution is important. This can be done by being a responsible borrower and making timely payments without fail. Timely payments of your credit card bills can ensure you get an edge in the borrowing game. 

    Not only your credit card bills, but you must ensure timely payments of all sorts to have an impressive credit score. 

    • Make use of autopay reminders:

    Put autopay reminders to use in case you are forgetful about making payments on time because there are numerous due dates to take care of. Many banks and credit card companies help you plan timely payments by sending you push notifications or emails. Take the required actions as soon as you receive such notifications. Procrastination should be avoided when dealing with activities related to credit. 

    • Do not open many accounts at once:

    VantageScore and FICO study the number of new account openings and credit inquiries, such as requests for credit limit increases or applications for new financial products. Your credit score will suffer if you practice this frequently. Refrain from this by only applying for jobs you really need. 

    Bottom line

    So if you want to raise your creditworthiness, focus on raising your FICO score or standard credit score. You must raise or keep up strong FICO ratings if you want US lending institutions to approve your mortgage application.