The question “what is a FICO score” can be simply answered by it is your credit score. The real discussion begins on the details about what it really is and why does it matter. A FICO credit score is used by lenders to gauge your creditworthiness. It based from a software developed by Fair Isaac Corporation.
What is computed to come up with the FICO score?
A credit report is basically a comprehensive list of the details dealing with your finances. The information in your credit report is what is computed to come up with your credit score. The particular information reflected in your credit report include your history of paying debts, amounts you owe, the length of your credit history, types of credit you use and the number of new credits you have recently opened. The first two factors make up bulk of your FICO score.
Your punctuality in making payments is important to creditors or lenders as this is their assurance that you will not default on your payments. A couple of late payments are fine as long as the delay does not exceed a month or so from the due date. There are also other facts that will affect this information, such as foreclosures, liens, attachments, bankruptcies, lawsuits and judgments. When it comes to how much you actually owe, using a huge chunk of your allowed credit is a bad thing. This is true even if you manage to pay your monthly payments on time. Also, it is taken negatively if most of your income goes to credit payments.
Other data appearing in your credit report
There are also pieces of information included in your credit report but will not affect your FICO score. These function merely as identifiers. These include your social security number, your address, history of employment and your date of birth. Other credit scoring systems may take these into consideration but not the FICO score.
What is a FICO score used for?
Scores range from 300 to 850. Having a score of 700 and up is considered a good credit score, while a score within the 600 mark is considered bad. Your credit score matters on a number of situations. The most important one is that your score is considered by lenders on whether to extend a loan to you or not. Your score is also taken into consideration on how much you will be charged for service and interest rates. Also, more and more landlords check your credit score to gauge whether you are tenant-worthy or not. Lastly, some employers also use the information to determine whether they should hire you or not.
It would also be noteworthy that a person may have three different FICO scores from the three credit bureaus. The difference comes from how comprehensive the credit report they have and how recently updated it is. Earning a low rating is not the end of your credit life, FICO scores change over time depending on how you handle your finances.
