FICO score – what is it?
If you are not familiar with this term yet, this article is for you. Even if you do not need a loan right now, it would be useful to know how to deal with your finances in the long term and of what you should take care beforehand. A good FICO score is the result of a whole range of your actions.
Thus, you should know in advance how to make good decisions concerning your finances because it is the FICO score which will influence your bank’s decision about giving you a loan and on what interest.
What is it then?
FICO is mostly known as a credit score that ranges between 300-850. In fact, this word stands for the name of a company- The Fair Isaac Corp. –which analyzes a possible risk of your financial trouble in the future. Therefore, they can predict whether you will be able to pay off you debts on time.
Not without reason, anyone who is going to do some business with you (either a bank, a landlord or an insurance company) will make use of such information first.
To put it in short, you are in the best position when your score is above 760 and 650, or lower, means that you need to do some changes in your personal finance management because you do not seem a very reliable business partner. When you are in between, the decision whether you receive the loan or not will vary depending on the lenders’ individual rules.
Is FICO the only source of such information?
Of course there are other analytic companies like FICO (for example Vantage Score), but still it is FICO which is strongly established in its trade and comes to our mind as a first when we think about scoring. Most of the companies’ grade range is the same – from 300-850 – so your score would be similar in the other credit score versions.
How can I improve my score?
If your credit report – on which the score is based – does not include much positive information, you need to make some necessary changes.
In general, the score comes from the analysis of five categories concerning your credit history.
We listed them from the most to the least important factor:
- payment history (be punctual in your payments),
- amounts owed,
- length of credit history (the longer, the better),
- new credit (avoid opening many new accounts in a short amount of time),
- types of credit in use (a mixture of various types of credit in your history can increase the score).
One thing is certain, improving your score must take some time. In one case it can be achieved sooner, in another case, later. Learn more and start building your better score!