What is a FICO Score? How do they Work?
What is a FICO Score?
Your FICO score is a kind of credit score used to figure out if or when you may be approved to borrow. Banks, auto dealers, credit card companies, and almost all lenders use the FICO credit scoring system to decide what kind of risk they will take buy lending to you. There are 3 main credit bureaus used by all lenders to determine how risky it is to lend to you.
The term “FICO” came from a company called the Fair Isaac Corporation, which was a credit reporting firm.
These “FICO” scores have not been around as long as most people think. They became more of a standard in the late 80’s. Surprising huh?
FICO Score and Credit Score, they are same thing, right?
A FICO score is just one form of a credit score. It just happens to be the most commonly used score and that is why it has become synonymous with your credit score. And most people know that there is usually some difference in their credit scores from the big 3 bureaus: Equifax, Experian and TransUnion.
What is a Vantage Score?
A Vantage Score is actually one that, although similar to FICO, it was created by the 3 credit bureaus, TransUnion, Equifax and Experian. Why did they create it? The Vantage Score is used more when someone does not have enough credit history to generate a typical FICO score. Young people just out on their own have little credit history so creditors use the Vantage Score to determine the risk in lending to them.
Just remember, both are just credit scores used to determine if you can get credit of almost any kind.
How is your FICO Score calculated?
Certain factors are considered, and each has a different weight or importance to your overall score. Generally, these are the factors and weights assigned to them:
Your payment history -35%
Amounts you currently owe -30%
The length of your credit history -15%
Your credit mix (what composes your actually credit history) -10%
New credit (your activity recently) -10%
Are there types of FICO Scores?
Most people think there is only one kind of FICO score. The common one is an industry specific score for businesses. All you really need to know is that your score range is 300–850.
How are the FICO score ranges defined?
Here are the defined FICO score ranges:
Very Good: 740–799
Does your FICO score really matter?
If you are applying for a new car lease (or even a used car purchase), a new credit card, a home or property purchase, etc. then you need a credit score and preferably one that is ‘good’ or higher.
Is it possible you do not need a score? Yes, it is. But it requires you are debt free and pay cash for your needs or payoff any credit cards you use every month, in full. Not many people go this route as it often means you need a higher income to reach this level over time. But there are exceptions. So do not feel bad if you decide to be a person or family that leaves entirely by its means and is not beholden to any creditors.
If you do need cash now, then FaaastCash can help.