What is a FICO Score?
What is a FICO Score? Want to know the FICO Score full form? A FICO Score is a credit score created by Fair Isaac Corporation. Lenders use it to check how you will repay borrowed money.
This score considers five main aspects in your credit history:
2. Payment History
3. Credit Age
4. Credit Mix
5. New Credit
The score is a three-digit number between 300 & 850. A higher score means you are seen as more reliable for repaying loans. Most lenders in India rely on scores from credit bureaus like CIBIL. The FICO score is now gaining ground.
It has become a speedy way for lenders to decide if you are a safe borrower like a CIBIL score. A FICO score helps you get a personal loan with better terms & a fixed interest rate.
Here’s how it works:
1. Your payment history makes up the biggest part at 35%.
2. The total amount you owe counts for 30%.
3. The length of your credit history adds 15%.
4. Both the new credit mix of credit types you use make up 10% each.
Types of FICO Scores
The following are the versions of the FICO score. Each is used for different types of credit & by different credit bureaus.
The table below lists the common versions in use:
Version of the FICO Score | Experian | Equifax | TransUnion |
Popularly used one | FICO Score 8 | FICO Score 8 | FICO Score 8 |
Versions in mortgage lending | FICO Score 2 | FICO Score 2 | FICO Score 2 |
Versions in credit card decisioning | FICO Bankcard Score 9 | FICO Bankcard Score 9 | FICO Bankcard Score 9 |
Versions for auto lending | FICO Auto Score 9 | FICO Auto Score 9 | FICO Auto Score 9 |
Newly released ones | FICO Score 10 | FICO Score 10 | FICO Score 10 |
FICO Score 8 is more popular than other versions. It is used for education, personal or other types of credit.
Is FICO Score the same as Credit Score?
Wondering FICO Score vs Credit Score? A FICO score is a credit score. Likewise, a CIBIL score is a form of India’s credit score. The purpose is the same: to check your creditworthiness. The credit score and FICO score difference lies in how they are calculated. It differs depending on the scoring model used as well as the credit bureau.
The FICO score has a base version that lenders use to check your general repayment ability. It has sector-specific versions for products like auto/home loans or credit cards. These versions focus on aspects that are most relevant to the borrowing type.
Different scoring models can give different results even when the same credit report is used. This is because every model weighs the FICO score components differently.
FICO score India is growing. It can offer a trustworthy way for lenders to assess risk. Checking reports from all three credit bureaus remains significant to monitor progress toward a strong score. This helps you improve your chances of getting approved for a personal loan with great terms.
Check your CIBIL Score.
How does the FICO Score work?
FIFO is an analytics software firm that offers services & products to both consumers as well as businesses. It produces widely used consumer credit scores. These scores help financial institutions decide whether to approve a loan or issue credit.
The FICO score can help with lending decisions. It is designed to show how likely a borrower is to repay debt. A higher score usually means a borrower is seen as low risk. A lower score can limit your ability to get approved. Borrowers can give reasons for negative items in their credit report. Similarly, many lenders may deny a loan to one with a low score.
Range of FICO Score
The FICO score range starts at 300 and goes up to 850. A score between 670 & 739 is considered good & is often seen positively by lenders. Borrowers with scores in this range are more likely to get approved on favourable terms.
A score between 580- 669 is seen as fair. It may make it harder to get loans at attractive rates. Lenders use the charge off rates by FICO score to assess risk. They may also consider your income. They also consider the type of credit you are applying for as well as your job stability.
How to improve your FICO Score?
It is imperative to check FICO score regularly to spot errors and track progress. A strong FICO score starts with a good mix of credit accounts alongside a record of paying on time. Keeping your credit use low also makes a difference. Many experts suggest using less than 30% of your total available credit.
Habits like maxing out credit cards or missing due dates can bring your score down. Do not apply for too many credits as this can reduce your score. Checking your credit report often can help you find the mistakes that impact your score. You can get one free credit report each year from the major credit bureaus as per law.
How to Calculate FICO Score?
The FICO score depends on major key parameters. Each has a set percentage that may impact the total score.
1. Payment History Makes up 35%
Payment history measures how regularly you pay your bills on time. Your credit report lists all payments for each account and includes any bankruptcies or collections.
2. Accounts Owed Count for 30%
Accounts owed look at how much you owe compared to your total credit limit. A large amount of debt does not always mean a low score. What matters more is how much of your available credit you are using. For example, owing ₹10,000 with all cards maxed out can lower your score more than owing ₹100,000 while using only a small part of your limit.
3. Length of Credit History Makes up 15%
Having credit for a longer time helps improve your score in most cases. Still, strong performance in other areas can result in a good score even with a short history. This aspect looks at how long your oldest account has been active. It also checks the age of your newest account as well as the average age of all your accounts.
4. Credit mix counts for 10%
A healthy mix may include credit cards or installment loans like vehicle loans as well as mortgages. Having multiple types of credit shows you can manage various forms of debt responsibly.
5. New credit also makes up 10%
Opening several new accounts in a short period can signal risk to lenders & may lower your score.
FICO Score vs Vantage Score
The FICO score is not the only way lenders measure creditworthiness. VantageScore is another option. It was created in 2006 by the three major credit bureaus. It’s another scoring model that uses a range from 300 to 850. Both consider aspects like payment history, credit mix, as well as credit use.
Your Vantage score can be slightly higher or lower than your FICO score because of these differences. The scoring rules also vary. FICO needs at least one credit account that is over six months old & active in the past six months. VantageScore only needs one account without any age limit.
FICO Versions
FICO exists in various versions as the company has never compromised on updating the calculation methods ever since it introduced its first version in 1989. Since then, new models have been released, but lenders decide if or when they adopt them.
The most commonly used model is still FICO Score 8. Later versions, like FICO Score 9 and the FICO Score 10 Suite, introduced changes such as giving less weight to medical debt, recognising rental payment history, and being more lenient with fully paid collection accounts.
FICO Score 9 brought these updates but could not replace the popularity of FICO Score 8. The release of FICO Score 10T in 2020 uses detailed trends in a borrower’s credit data. With that, there is a chance it could become the preferred model in the future.
Conclusion
Knowing the FICO score meaning & how it differs from other credit scoring methods can help you manage your finances better. You can improve your score by paying bills on time. You can also keep credit utilisation low & maintain a healthy mix of accounts. Avoid too many new applications. A strong FICO score can make the process easier & affordable. Regularly check your reports for errors to maintain a score that keeps you financially ready for your future needs.
Frequently Asked Questions (FAQs)
Q.1. Is FICO the highest credit score you can have?
The highest FICO score is 850. It means excellent credit. Other models (like Vantage score) also go up to 850. Reaching the top score nonetheless is rare. Lenders usually see anything above 800 as very strong & safe for giving loans.
Q.2. Why is my FICO score different from other credit scores?
Your FICO score can be different from other scores because each system calculates it in a different way. Even if they use the same credit report, the weight given to things like payment history or credit use can change, causing small differences.
Q.3. Which is better: a FICO score or a credit score from other companies?
A FICO score is used by most banks and lenders, so it’s often more important. Other scores, like VantageScore, are also useful but might not be accepted everywhere. Knowing your FICO score gives you a better idea of what lenders will see.
Q.4. How often does my FICO score get updated?
Your FICO score changes when your lenders send new information to credit bureaus. This usually happens once a month but it can be more often. Paying bills, taking on new credit, or closing accounts can all make your score go up or down.
