FICO is Fair Isaac Corporation, that gauges your creditworthiness using five major indicators - loan repayment history, current level of debt, length of credit history, blend of loans taken and newly opened credit accounts.
What is FICO score?
FICO is an abbreviation of Fair Isaac Corporation, which is the creator of this analytics software. It is a score given to you based on your credit borrowing and repayment history. When you approach a lender to borrow a loan, FICO score acts as an assessment tool to test your trustworthiness. This score can be accessed both by the borrowers and the lenders.
Indicators to assess your FICO score:
There are five major indicators that are used to test your creditworthiness:
Loan repayment history
This checks if you have repaid your dues on time without any default and if you have filed for bankruptcy at any point.
Length of credit history
This is to see how long you have a credit history, to assess your behavior trends. The longer you have had debts and if you have been paying them promptly, there are possibilities that you will have a better FICO score.
Types of loans taken
It examines the type of loans you have, whether it is an education loan, home loan, credit card loan, car loan, personal loan, etc. If you have had a blend of loans, there is a chance for your FICO score to be high.
Current level of debt
The value of debt that you currently owe. FICO assesses the original loan amount taken and the current outstanding. If you have repaid a major portion of the loan taken, you are expected to have a good score.
New credit accounts
It checks the loan accounts you have recently opened. If you have opened a number of loan accounts in the recent past, your credit score is believed to drop.
Weight-age given to each category
The company calculates your score by assessing the above indicators. Here we have listed the weight-age given to each indicator:
- Loan repayment history: 35%
- The current level of debt: 30%
- Length of credit history: 15%
- Types of loans taken: 10%
- New credit accounts: 10%
Updates to FICO score
The credit scoring software company keeps updating its tool and there are several versions that serve different sectors. We have listed the most commonly used versions:
- Widely accepted: FICO score 9 and FICO score 8
- Auto lending sector: FICO Auto 9, FICO Auto 8
- Credit card industry: FICO Bankcard 9 and FICO Bankcard 8
- Mortgage applications: FICO Score 2, FICO Score 5, FICO Score 4
- Latest updates: FICO score 10, FICO Auto score 10, FICO Bank card score 10, FICO score 10T
FICO Score
To conclude, FICO score is one of the trusted and prime yardsticks for lenders to gauge your financial reliability.