A FICO score is a three-digit number that is used to evaluate an individual’s creditworthiness. It is based on an individual’s credit history, and it ranges from 300 to 850. The higher the score, the better the credit history.
The FICO score is the most widely used credit score in the United States. It is used by lenders, landlords, and other organizations to determine an individual’s creditworthiness. A high FICO score can lead to better interest rates on loans, lower insurance premiums, and even higher credit limits.
The FICO score is calculated using five different factors: payment history, credit utilization, length of credit history, types of credit in use, and new credit.
Payment history accounts for 35% of the FICO score, and it is the most important factor. Lenders want to see that an individual has a history of making timely payments. Late payments and delinquencies can have a negative impact on the score.
Credit utilization, which is the amount of credit used compared to the total credit available, accounts for 30% of the FICO score. It’s recommended to use less than 30% of the credit available, or lower, to have a positive impact on the score.
Length of credit history accounts for 15% of the FICO score. A longer credit history is generally considered to be more favorable.
Types of credit in use account for 10% of the FICO score. Lenders like to see a mix of different types of credit, such as credit cards, mortgages, and car loans.
New credit accounts for 10% of the FICO score. Lenders are cautious of individuals who are applying for new credit too frequently, as it may indicate financial stress.
It’s important to check your FICO score regularly to ensure that it is accurate and to keep an eye on any changes. If there are errors on your credit report, it’s important to dispute them as soon as possible.
Overall, FICO Score is a tool that helps lenders and other organizations evaluate an individual’s creditworthiness. By understanding the factors that go into calculating a FICO score, individuals can take steps to improve their score and take advantage of financial opportunities.