Fico credit score
FICO credit score - An Overview
Credit score is a financial term which plays a very important and critical role in an individual's life, especially if one is interested in applying for a loan. Actually, credit scores are calculated by Fair Issac Corporation and known as FICO credit score, which most lenders use to determine an applicant’s financial status—whether or one will pay-off the bills or not?
FICO credit scores are determined on the basis of mainly five criteria. These are: payment history of an individual, the amounts owed, the length of individual’s credit history, new credit, and the types of credit used.
FICO credit score model
The credit score of an individual is the most important factor when decision has to be taken for an approval of the loan. It also determines the interest rate an individual gets—if an individual has a high credit scoring, he will get a lower interest rate; and in case has lower credit score, he has to pay a huge amount of interest over the years! FICO credit score model ranges from 350-800—the lower and higher limits of credit scores. Although the definition for good credit score may vary from lender to lender, but a credit score ranging 650-749 is considered mostly as good.
Although this model is widely used and accepted, the most famous users of the model include Experian, Equifax and TransUnion - the three major credit bureaus. Equifax uses the Beacon credit score that ranges from 340-820, Experian uses the Fair Isaac or Plus score that ranges from 330-830, and TransUnion uses the Empirica score ranges from 150-934. These are known as the Equifax Beacon score, the TransUnion Empirica score, the Fair Isaac or Plus score.
FICO credit score—Exclusions
Following are the factors which are excluded from credit score calculations:
- House
- Income
- For how long the individual is in his current job
- For how long an individual is residing at the current address
What to do if having a low credit score?
To improve one’s credit scoring, one must do the following:
- Pay more than a minimum amount on the credit card bills
- Make a plan to eliminate the debt
At last, it is very important for each individual to check his or her credit report at least once in a year, because the credit scores are calculated relying on the credit report information irrespective of the errors, if any. And, above all, as per FICO estimates, more that 75% credit reports contain errors.