A FICO score is a measure of an individual's creditworthiness, originally developed by the Fair Isaac Corporation. Those with lower FICO scores are generally required by lenders to take out loans at higher rates of interest to compensate for the greater risk of default.
Features
According to the Fair Isaac Corporation, FICO scores usually are lowered anytime a borrower does not pay back a loan according to agreed-upon terms. For example, a person who misses a payment on his credit card or does not pay the full amount will likely see his score drop.
Effects
Paying off debt on credit cards typically improves an individual's credit score, or at least stops it from dropping. However, because a FICO score is calculated using a variety of factors related to the individual's history, including the amount owed and the number of balances, a precise estimate of how much the score will rise is not possible.
Expert Insight
According to the Fair Isaac Corporation, individuals will raise their score more if they pay down debt than if they move it around or shift it to other cards. Closing some lines of credit but retaining the same amount of debt may actually result in a lower score.
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