FICO Score

FICO Score is a type of credit score generated by the Fair Isaac Corporation (FICO). Up to 90% of the top lenders across the world use this score to assess an individual’s creditworthiness. It ranges from 300 to 850, with higher scores indicating a better credit profile. The score indicates the credit available to an individual, credit utilisation, timeliness of payments, and so on. Of the 16 versions of the score available, lenders usually rely on the FICO Score 8 to decide on approvals for personal loans, education loans, retail credit, and so on.

Different scores fall under different ranges with specific ratings. The following table helps understand what your score and rating signify to lenders:

FICO divides its scoring criteria into 5 areas. It assigns a percentage score depending on the weightage of each category. The breakdown is as follows: 

Let’s understand these parameters better:

• Payment history

Your on-time and late payments are checked when assessing your payment history. Also, any public records of non-payment like bankruptcy are also considered. 

• Accounts owed

Here, the focus is on the credit available to you. FICO assesses the amount you can borrow across your existing credit accounts, such as credit cards and loans, and then evaluates how much of that available credit you are using.

• Credit history duration 

This includes the age of your accounts, the average age of your accounts, and the last time you used each account

• Credit mix

The types of loan and credit card accounts you have make up your credit mix and influence your score

• New credit

Your credit scores might be impacted by opening new accounts and credit queries

It’s important to understand the following features and advantages of a FICO Score: 

• Universal Credit Assessment

The FICO score is used by creditors to assess your eligibility for a new loan or credit card

• Assistance in Credit Management 

The FICO score provides a snapshot of your past credit management behaviour. This helps lenders in evaluating your creditworthiness.

• Access to Better Options 

A score of 670 or more opens doors to more options and lower interest rates

• Impact on Renting 

Landlords may consider the FICO score for rental purposes. It may play a huge role in determining the deposit amount and rent.

• Improved Loan Terms 

Higher credit scores increase the likelihood of getting loans at favourable rates. It improves the overall borrowing conditions and repayment terms. 

• Insurance Premiums 

Higher scores may result in lower premium rates from insurance companies. It can impact the overall financial costs of the policy.

• Informed Borrowing 

Regularly checking your credit score helps you assess your loan eligibility. It helps you check your chances of getting quick loan approvals and favourable terms. This insight helps in informed decision-making.

Try to follow the tips given below to enhance your FICO Score:

• Credit Report Review 

Review your credit report, acting as a roadmap to enhance your score 

• Error Identification 

Scrutinise reports from all the credit bureaus for errors. Address them promptly by contacting the bureau and your lender.

• Timely Payments 

Ensure timely payments on credit cards and loans to maintain a good score 

• Address Late Payments 

Avoid late payments of 30 days or more, as they can negatively affect your credit score 

• Credit Utilisation Management 

Maintain a lower credit utilisation ratio by responsibly using available credit. This can help you increase your FICO score.