What does a FICO score mean?
It’s your credit score calculated using the FICO® scoring model
Learn what a FICO score is and how it impacts your life.
The phrase “FICO score” is arguably one of the most used expressions in the credit space. If you’re new to credit matters, it’s only natural for you to wonder what it means.
Let’s explore it a bit.
“FICO score” refers to your credit score calculated using the Fair Isaac Corporation’s (FICO) model. Your FICO score comes from the information in your credit report. Thus, your FICO score, which is a variation of your credit score, is an indicator of your financial standing and creditworthiness.
It helps lenders decide whether or not to grant your loan application, as well as the terms and conditions of the loan.
The Fair Isaac Corporation introduced FICO scores by creating a conventional scoring model that would be favorable to both consumers and lenders. The FICO scoring model has since become the most popular model used to calculate consumers’ credit scores.
The essence of the FICO score
The FICO score is important for the following reasons:
- It helps lenders easily determine whether you qualify for loans.
- It makes it easy for lenders to determine the interest rates and terms they’ll grant you when you apply for loans.
- Since you can boost your FICO score by improving your financial habits, it implies that you can increase your chances of getting approval for loans with better terms and rates, too.
What affects a FICO score?
Now that you know what a FICO score is, you need an idea of the factors that affect it. Your FICO score takes five elements into consideration with varying degrees of importance.
- Your payment history, which accounts for 35% of your FICO score — a history of timely payments will boost your FICO score.
- The length of your credit history, which accounts for 15% of your score — keep in mind that this focuses on the average age of all of your accounts.
- Your credit utilization (i.e., how much of your credit you use) as well as how much you owe on your various accounts makes up 30% of your FICO score.
- New credit, which accounts for 10% of your score — this portion of your score takes into account whether you’ve recently opened up new lines of credit.
- Your credit mix, which accounts for 10% of your FICO score — it weighs the various accounts that you have such as credit cards, mortgages, auto loans, and other types of credit lines. A healthy mix gives you a better score.
Still a little confused about the specifics? Read this post to understand the difference between a FICO score and a credit score. Since your FICO score serves as an indicator of your credit health, make sure you take the necessary steps to protect your credit.
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