Credit score is an important factor in qualifying for a traditional loan. Your credit score determines your creditworthiness as a borrower. The lender expects you to have a good credit score as it proves you are more responsible.
Read below for more information on FICO Credit Scores.
What does the term FICO mean?
The term “FICO” comes from the company name “Fair Isaac Corporation”. Credit bureaus and lenders use the FICO credit score to determine the creditworthiness of a borrower.
What is the FICO Credit Score?
The FICO credit score is a three-digit number that indicates the borrower’s repayment probability. Factors such as the type of credit used, new credit account, payment history, outstanding debt, collection actions, and credit history length are taken into account when calculating the FICO credit score.
How is the FICO credit score calculated?
The factors used to calculate the FICO credit score are:
- Payment history (35% of FICO credit score)
- Various account / credit types (10%)
- Debt / Accounts Payable (30%)
- New credit / inquiry (10%)
- Age of credit history (15%)
Other credit score models also take these factors into account when determining your credit score. If your FICO score is high, you may have a high credit score with other models. However, the credit score calculation may vary depending on the individual, the type of loan applied, and the percentage of the credit score factor.
What is considered a good FICO score?
FICO scores range from 300 to 850, with good FICO scores starting at 670 and above. The higher the credit score, the lower the risk to insurance companies and lenders. If the borrower has a FICO score in the range of 760 or higher, they can qualify for a traditional loan with good rates and ideal discounts on insurance.
What does the FICO number stand for?
The FICO credit score determines the type of loan you are eligible for. Borrowers with low credit scores can only qualify for short-term loans if they have a stable source of income.
Breakdown of FICO credit score
- 740-799-Very good
- 580 to 669-normal
- 300 to 579-bad
For mortgages and mortgages, a good credit score is important. Short-term payday loans are processed even if the credit score is low, but the minimum credit score that a lender accepts depends on the lender. There are also some restrictions on the maximum amount you can lend to a borrower with a low credit score.
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