5 Fantastic Facts About FICO!

Posted by:

How well do you know your FICO facts?

If you’re wondering what FICO is or even why you should care, then this article is definitely for you. In fact, FICO – which stands for the Fair Isaac Corporation – is the longtime firm that generates your FICO Score.

Of course, FICO Scores come into play on 90% of all lending decisions with banks, lenders, mortgage companies, and more every day, so if you’re not firm on your FICO facts, we really need to talk!

Knowing the ins and outs of credit scoring can help you keep a higher credit score, get lower rates and better terms on loans, and generally save money across your entire financial landscape.

So, to get started, here are 5 important things to know about FICO Scores (and we’ll cover more in future articles):

 

  1. Getting to know FICO

The Fair Isaac Corporation was founded all the way back in 1956, using some very futuristic math and primitive data analytics to aid businesses who were trying to make better lending decisions. Hence, FICO Scores (or some early iteration) were born.

Today, FICO Scores affect tens of millions of lending and credit decisions every single day. So, how do FICO Scores actually work?

Any time a FICO Score is requested, multiple credit reports are evaluated for that consumer, crunching the numbers on five important factors (see below) as well as establishing patterns of good – or bad – credit use. At that point, FICO generates a three-digit number that accurately summarizes your relative risk as a borrower for new credit.

That score, called your FICO Score, sits between 300 and 850 and helps the particular business, bank, retailer, lender, or even utility company know if you are a good candidate to pay on time and manage your new account responsibly – or miss payments and default.

For that reason, FICO Scores are invaluable to the business and lending landscape!

 

  1. What factors make up your FICO Score?

There are 5 factors that go into every consumer’s FICO score. They are – listed in order of importance:

35% Payment history

30% Account balances (how much you owe)

15% Length of credit history

10% New credit (If you apply for or open a lot of new accounts in a short time)

10% Type of credit (FICO wants to see a healthy mix of credit cards, home loans, retail and installment debt, etc.).

 

  1. What isn’t included in your FICO Score?

Now that we know what goes into formulating your FICO, let’s take a look at which components NEVER influence your score.

According to FICO, those include your race or any racial or ethnic data, your religion, your national origin, your gender, marital status, and any political affiliations. FICO ONLY cares about your finances, debt, and how you manage them on a regular basis, and that’s the fact!

 

  1. What are lenders looking for when they make decisions?

We mentioned earlier that FICO Scores are used in 90% of all lending decisions across the U.S.A. And banks, lenders, and retailers rely on FICO to gauge their risk when granting credit to new customers.

Of course, lenders are looking to minimizing risk with these important financial decisions, so what are they looking for when a consumer’s application comes across their desk?

Lenders assess risk with a consumer’s:

  • FICO Score
  • Track record of payment
  • Current debt amount
  • Demographic information like your age, salary, occupation, employer, where you live, etc.
  • Public records like judgments, collections, and any bankruptcies
  • Recent credit history
  • Income

They also pay close attention to what interest rates you’re paying on other credit cards or debts, child support, and the number of inquiries you have for new credit lately.

Yes, lenders look at your FICO Score but a whole lot more!

 

  1. Want to boost your score?

We shared that FICO Scores range from 300 to 850, with above 700 widely considered a good score and above 800 considered exceptional. But the good news is that FICO isn’t trying to keep anything secret but tell us exactly how to boost our scores with tips and best practices.

In fact, according to publicly released FICO research, people with top-echelon scores (above 800) typically:

  • Make all of your payments on time each month without ever missing a payment or being late.
  • Keep your account balances low. Called “credit utilization,” this means your ratio of debt to available credit is low. It’s recommended that you keep your ratio below 30%, but those with 800+ scores keep them below 10% – and even at 7% on average.
  • Don’t apply for new credit recklessly or unnecessarily. Applying for new credit every time you’re in line at a retail store and want to save 10%, jumping at every unsolicited credit card offer in the mail, or shopping around for financing endlessly for months and months.
  • A seasoned, mature credit history really matters! Your oldest accounts in good standing signal to FICO that you are a safe, established consumer when it comes to credit, so closing out those accounts can actually really sink your score.

So, think twice before paying your oldest credit card to $0 and canceling it, even if you think it’s financially responsible!

 

Where can you go for help with your FICO Score?

Blue Water Credit is the trusted industry leader in legal and ethical credit repair. That includes a thorough review of every item on your credit report with each bureau and analyzing how they are impacting your FICO Score.

Using credit laws and regulations to hold the bureaus accountable for errors, duplicates, and outdated information, Blue Water can help you rehabilitate your credit and boost your FICO Score.

We offer a complimentary consultation just to get started, so give us a call!

 

 

 

0

About the Author:

  Related Posts

You must be logged in to post a comment.