All about FICO Score

Apart from the three credit bureaus, Equifax, Trans Union and Experian, credit rating scores from FICO are also acceptable to 90% of the lenders, including many reputed banks. FICO is calculated for lenders to evaluate the risk in lending the money to a candidate. The formula for FICO score uses addresses, names, alias names, occupation, financial history and everything else about a person.

How Does FICO Score Work?

Since FICO score is one of the most commonly used credit rating tools, it is essential to understand how it works and how the score can be repaired.

The formula used for creating the FICO score is based on the following information:

  • 35% Payment history
  • 30% Debt
  • 15% Length of credit
  • 10% New credit
  • 10% Type of credit

How to Improve FICO Score?

To improve the FICO score, it is essential to concentrate on more than one area. The first thing to do is not to run into any debts and make all payments on time. If, for some reason, you find that you are unable to make the payment on time then inform the lender about it and work out a plan, so that the payment does not show up on the credit report as an unpaid debt. Instead, it should show up as a current bill.

Experts advise that it is good to keep the debts as low as 35% in relation to the credit limit. If your have been making timely payments, then try to keep the old accounts open. While shopping, keep the length of the credit as less as possible.  While borrowers with good history are advised to keep old accounts open, borrowers with a history of bad credit can open new accounts and show responsible financial management to improve their FICO score.

FICO Score Range

While looking at the report, the lenders look at the 3 crucial digits, which tell how good your credit score is. The FICO score ranges from 300 to 850.

Scores from 700 to 750 are considered to be very good, while those above 750 are excellent. Those from 680 to 699 are good and 620 to 679 are acceptable. This means that if your FICO score lies from 620 to 750, you will be considered as a good bet for loan.  This will also qualify you for a low interest score.

When the score goes below this, from 500 to 580, some lenders will still offer loans but the rate of interest will be very high. If the score is 499 and below then you need help and should try and repair your bad credit.