If you are interested in finding out more information about your credit history, you will most likely hear the term "FICO score" at some point. Your FICO score is one of the most important numbers you have, and it can significantly affect your ability to obtain additional credit in the future.
Function
The purpose of the credit score is to provide a numerical representation of your credit history. The acronym FICO stands for Fair Isaac Corporation. Fair Isaac is the company that originally came up with the formula to create your credit score. This is the formula that the three major credit bureaus use to calculate your credit score, so they simply refer to it as a FICO score. The FICO score takes into consideration many factors when coming up with your number.
Lending
One of the most prominent areas where your FICO score can play a role is in the lending industry. When you try to get an auto loan or a mortgage, the lender will inevitably look at your FICO score. They will pull up your credit report, which has a lot of detailed information, but the single most important factor in their decision will be your FICO score. If your score is below a certain number, they may not be willing to work with you.
Benefits of High FICO Score
FICO scores range from a low of 300 to a high of 850. A score that is close to 850 would be considered a very good score. A score that is above 700 or 750 is considered to be a good score. One of the benefits of having a good FICO score is that you will pay a lower interest rate. You will also pay less for deposits when making purchases.
Influencing Factors
Your FICO score is calculated based on many factors in your credit history. For example, one of the most important factors to your FICO score is your payment history. If you always pay your bills on time, this will positively impact your score. If you carry low credit card balances that are below 30 percent of your available limit, this will also reflect well on you. Having a mix of different types of credit also works to your advantage.
Warning
While a good FICO score can work to your financial advantage, a negative score can significantly limit your options. With a low score, you may be unable to secure financing for a house, a car or any other large purchase. If you do get approved for a loan, you will most likely have to pay more in interest than someone with a higher score. Even your insurance rates could go up as a result of a poor credit score.
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