Overview of FICO (Fair Isaac Company) Scores
FICO scores are pivotal in the lending industry, particularly in deciding mortgage applications. Developed by the Fair Isaac Corporation, these scores range from 300 to 850 and represent the creditworthiness of a borrower. Factors influencing the scores include payment history, amounts owed, length of credit history, new credit, and types of credit used. Higher FICO scores denote lower credit risk, enabling borrowers to secure better loan terms, such as lower interest rates and down payments.
Examples
- Example 1: High FICO Score
Jane has a FICO score of 780. When she applied for a mortgage, her high score allowed her to qualify for a loan with a low interest rate and minimal down payment requirement. - Example 2: Low FICO Score
John, with a FICO score of 590, faced challenges. His lower score meant he could only qualify for a subprime loan, characterized by higher interest rates and a higher down payment.
Frequently Asked Questions
Q1: What affects a FICO score?
A1: A FICO score is influenced by factors including payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and types of credit used (10%).
Q2: Can a FICO score impact loan terms?
A2: Yes, a higher FICO score usually results in better loan terms such as lower interest rates and smaller down payment requirements.
Q3: How often should I check my FICO score?
A3: It is advisable to check your FICO score at least once a year to stay aware of your credit health and to catch any errors early.
Q4: What is considered a good FICO score?
A4: A FICO score between 670 and 739 is considered good. Scores above 740 are very good to excellent, while scores below 669 range from fair to poor.
Q5: Can improving my FICO score increase my chances of loan approval?
A5: Yes, improving your FICO score can make you a more attractive borrower, increasing your chances of loan approval and more favorable loan terms.
Related Terms
- Credit Report: A detailed report of an individual’s credit history prepared by a credit bureau.
- Credit Score: A numerical expression based on a level analysis of a person’s credit files to represent the creditworthiness of an individual.
- Subprime Loan: A type of loan offered at a rate above prime to individuals who do not qualify for prime rate loans.
- Down Payment: An initial payment made during the onset of the purchase of an expensive good or service.
- Loan Origination: The process by which a borrower applies for a new loan, and a lender processes that application.
Online Resources
- Fair Isaac Corporation (FICO)
- AnnualCreditReport.com
- MyFICO
- Credit Karma
- Consumer Financial Protection Bureau (CFPB)
References
- Fair Isaac Corporation. (2023). What is a FICO Score? Retrieved from FICO’s website
- Consumer Financial Protection Bureau. (2023). Credit Scores. Retrieved from CFPB’s website
- Annual Credit Report. (2023). How FICO Scores Work. Retrieved from Annual Credit Report’s website
Suggested Books for Further Studies
- “Your Score: An Insider’s Secrets to Understanding, Controlling, and Protecting Your Credit Score” by Anthony Davenport
- “Credit Repair Kit for Dummies” by Steve Bucci
- “The Road to 850: Proven Strategies for Building Your Credit Score” by Al Bingham
- “Credit Repair: Make a Plan, Improve Your Credit, Avoid Scams” by Amy Loftsgordon and Cara O’Neill
- “The Total Money Makeover: A Proven Plan for Financial Fitness” by Dave Ramsey
