What is a FICO Score?

A FICO Score is a credit scoring model developed by the Fair Isaac Corporation (FICO), a data analytics company. It is widely used by lenders, such as banks, credit card companies, and mortgage providers, to assess an individual’s creditworthiness. In other words, it helps lenders determine how likely a person is to repay borrowed money on time.

The FICO Score is calculated based on various factors from an individual’s credit history and financial behavior. The specific formula used to calculate the score is proprietary, but the factors considered generally include:

Payment History: This is the record of your payments on credit accounts, including credit cards, loans, and mortgages. Late payments, defaults, and bankruptcies can negatively impact your score.

Credit Utilization: This is the ratio of your credit card balances to your credit limits. Keeping this ratio low (below 30% is often recommended) can positively impact your score.

Length of Credit History: The longer your credit history, the better, as it provides more data for assessing your financial behavior.

Types of Credit: Having a mix of different types of credit accounts, such as credit cards and installment loans, can be beneficial.

New Credit: Opening multiple new credit accounts in a short period can indicate higher risk, as it might suggest financial instability.

Credit Inquiries: These occur when lenders check your credit report as part of their evaluation process. Multiple inquiries in a short time can negatively affect your score.

FICO Scores typically range from 300 to 850, with higher scores indicating better creditworthiness. Different lenders might have varying criteria for considering a credit score as “good” or “excellent.” Generally, a score above 700 is often considered good, while a score above 800 is considered excellent.

It’s important to monitor your credit score regularly and strive to maintain a positive credit history. A higher credit score can lead to better terms on loans, lower interest rates, and greater financial opportunities. You can obtain your FICO Score from various sources, including credit bureaus and financial institutions.