What Is a FICO® score?
The FICO® score is a number (a credit score) between 300-850®. FICO® score is the most widely used credit scoring system in the world. Most of the financial institutions in North America use FICO® score to determine an applicant’s credit risk. Fair Isaac Corporation – the pioneer in credit scoring, developed the FICO® score. Engineer Bill Fair and mathematician Earl founded this corporation in 1965.
A high FICO® score is considered a good score for consumer. Most consumers score in the 600 score and 700 score. Above 700 score mean you are in good financial position and lenders will most likely approve your credit request. Below 600 score indicate you are a high-risk client and lenders will most likely decline your credit request or will approve with much higher interest rates. Lenders buy your FICO® score from credit reporting agencies such as Equifax, TransUnion.
FICO® score is based on the five general categories:
· Payment History = 35% – Paying bills on time helps. Avoid late payments.
· Amounts Owed = 30% – If you owe a lot of money, it lowers your score.
· Length of Credit history = 15% – A longer history increases your score.
· New credit = 10% – Too many credit inquiries will lower your score. Lenders consider you a high-risk client when you actively seek credit.
· Type of Credit = 10% – If you use a combination of different types of credits such as credit cards, mortgage, car loans etc, and have good paying history – it may increase your score.
How To Obtain FICO® score
A regular credit bureau report does not provide FICO® score. For example, regular Equifax Credit Report costs $15.50; however, it will not show your FICO® score. To see you FICO® score, you can purchase Score Power Credit Report – it costs about $24. Or there are free providers such as Mogo, Borrowell, Credit Karma who provide FICO® score for free. Your banks may provide this for free as well. Check your online banking portal.