FICO Score: All You Need to Know About Credit Scores
The credit score is not a new term to borrowers and lenders. While many people have come across the word one way or the other, very few people, have heard of FICO score. In this article, we shall be examining everything you need to know about FICO Score. Credit score was initiated by the Fair Isaac Corporation, from which the FICO acronym was coined. Owing to its many years of experience, the FICO score is not just one of the most popular credit scores among lenders and borrowers, it has also been employed by numerous financial institutions globally. The FICO score of every individual is the total of all credit information from various agencies over a given period. This credit information is usually published and made readily available to be accessed by traders and companies alike.
Generally speaking, there are different types of FICO credit scores. These different types of FICO scores are mostly dependent on and influenced by the data made available to various credit reporting agencies. Also while there are several uses of FICO Score, over time, it has been used mainly for getting car loans, credit cards and mortgages. The higher the credit score of an individual, the higher the chance such individual stands in securing loans. This is why it is imperative to build an excellent financial record alongside a good credit score. Before going on to look at the many benefits of a good credit score, it is essential to look at how to determine a good FICO score.
Determining a Good FICO Score
In deciding a good score, it is essential to understand a certain score range. Your FICO score can be poor, fair, reasonable, perfect or excellent. A FICO score that falls within the initial range of 300 to 579 is a poor FICO score, and this will be a terrible score to have especially when looking to secure a loan. Next is a fair credit score. This score ranges from 580 to 669 and needs to be improved to convince lenders and loan companies. The average credit score is the most crucial factor to consider when determining a good FICO score, and this score is 700. Upon attainment of an average credit score by an individual, he can secure loans from lenders and loan companies. A good credit score is one which falls between the ranges of 670 to 739. This score becomes a perfect credit score if it’s above 739 and below 799. An excellent credit score gives you an edge when transacting with credit cards or securing any loans. It assures the lender or loan company that based on your record. You always pay up your debt within the stipulated time. If you as a borrower have a credit score that is average or above average, you have secured a place of creditworthiness in the minds of lenders that makes you access loans quickly and swiftly. Alternatively, a credit score below average is usually not always convincing enough.
Getting Free FICO Scores
When it comes to credit scores, it is not just about building a good credit score that is above average, most importantly it is necessary to get more FICO scores. Getting FICO scores gives you an edge when it comes to beating down interest rates when securing loans. The higher your FICO scores, the higher the chance of getting loans for any purpose at a lesser interest rate. Most lenders and loan companies charge individual with low FICO scores high interest rates when they are securing loans. Beside helping you reduce your interest rates on loans, FICO scores play a significant role in facilitating loan approvals. FICO is an incorporated company, and due to its many years of work experience, it has been able to establish a working partnership with some financial institutions globally. This partnership with these financial institutions makes it easy for individuals to have access to free FICO scores. The question then is how do you get free FICO scores? Of the many ways to get free FICO scores, the easiest is to get a credit card with your financial company. One of the many benefits attached to being a cardholder with your financial institution as long as it is one of those that partners with FICO, is that you will have access to free FICO scores easily. Asides from this, you can also earn free FICO scores by engaging in bounty programs online. All you need to do is to complete basic tasks online, and you will be entitled to these free scores. Other ways by which financial institutions make free FICO scores available to the public include;
- A track record of a good credit report with the company that gives you access to free FICO scores.
- An excellent and regularly updated Equifax credit report is also a means to earn free FICO scores from financial institutions.
- A verified identity, long lasting and well-maintained account with a financial institution can also be a perfect way to receive free FICO scores.
- Some financial institutions also provide free FICO scores to customers on a monthly basis through some financing schemes made available.
An understanding of FICO scores makes it easy for you to carry out financial transactions, have easy and quick access to loans, and enjoy a discount on interest rates on loans.
How Are FICO Scores Calculated?
Calculating FICO scores is as good as having free FICO scores. This is what makes it very necessary to know how to calculate FICO scores. Credit information on your credit report is what is being used in calculating your FICO credit scores. Virtually all data is needed, but the most critical include:
- Payment history. This is the record of all of your previous payments that have been made transacting with various lenders and companies. This affects future transactions because many lenders and companies look into this before giving out loans to individuals. The more you are good with payments, the higher the chance you stand to be considered by lenders. This factor constitutes about 35% of the whole calculation.
- The amount you owe. This is the total of your present debt with any company or lender, and this constitutes about 30% of the estimate. It is always good to avoid debts across several accounts as this will amount to a poor FICO score which will scare lenders away from you. This is because it means that you are not good at paying up your debts, or that you are slow at it.
- Credit History. This is measured over by taking into consideration your past credit history over a specific period. A time range is measured and calculated, and this constitutes about 15% of the entire calculation. You must have used the account to carry out transactions and must have been able to pay up credit accounts. So a good credit is an indicator that you don’t just always pay up, you pay up on time too. This has a correlative effect on your FICO scores and how lenders attend to your loan requests.
- Present Credit. The current credit status has to do with your new credit, and this is entirely different from your credit history which is your past credit record. Many lenders and loan companies in recent times have begun to consider this factor more because it is more convincing to have an individual with a single and concentrated design than having several accounts that are inactive. This constitutes 10%.
- Your credit mix. This is the difference between your track record of debt and credit history across several mediums, ranging from your credit card accounts transactions, loans application to mortgages as well. All of this credit mix constitutes about 10% also.
It is from analysis of all of these that an individual’s credit score is being calculated taking into accounts all necessary information as they should be used. This calculation is what differentiates one person’s FICO credit score from that of another person. Asides this differentiation, this calculation helps you to know when and how to improve your FICO scores and begin to source for free scores if need be. These calculations are being carried out on a timely basis, and the changes in the outcome of the calculations are what mandates a regular update of each credit report so that it can be reflective of subsequent changes upward or downward. In all of these, regular payment of loan collected with the specified time is key to a good credit score, access to free FICO scores.
How to Repair a Bad FICO Credit Score
As an individual with a bad credit score, it is not enough for you to give in because regardless of how bad your credit score, there is always room for subsequent improvement. This brings to light the question ‘How can you repair a bad credit score?’ The first step in improving your credit score is to repair your current FICO credit score. The repair of a bad credit score and the subsequent improvement takes a process that you have to stay consistent to get the desired result. A regular review of your credit account is very vital to the repair and building process. Several ways have been put forth to help you in repairing and subsequently growing your credit score. Some of these ways include:
- Make Use of Payment Reminders
Quick and timely payments are an excellent means of fixing lousy credit scores and gradually growing an existing one too. To ensure that you pay up your debts on a timely basis, it is essential to set payment reminders. These reminders help in notifying you about your existing debts and its due dates. These payment reminders can come directly from the financial institution you register with or can be set up personally. It could come in the form of emails or texts. It is not just about setting reminders; most importantly it is necessary to adhere to the reminders.
- Avoid Accruing More Debts
In a bit to repair a poor FICO credit score, it is vital that you put a stop to accruing more debts. This allows you to be able to pay up the existing debts instead of expanding your debt record. By avoiding debts, you are not just repairing your bad credit score; you are gradually building it. So make it fewer debts, more credit payments
- Develop an Automatic Payment System
An automatic payment system can help you repair a bad credit score. In doing this, you will have to arrange with your bank that allows your debt to be paid directly from your bank. This will facilitate the payment of debts and will drastically improve your credit score.
In conclusion, FICO credit scores are significant. This is why it is vital to know what they are and how they can be used. To measure the strength of your credit score, it is essential to understand how FICO credit scores are being determined. This way you will know what range your FICO credit scores fall and to see if it is poor, fair, and reasonable, average, perfect or excellence. Also, it is essential to know that you can get free FICO credit scores to help you reduce loan interest rates and have your loan application approved easily and quickly. However, in a case of a low FICO credit score, there is no cause for alarm as you can repair your credit score and build it from a poor credit score into a perfect credit score that will help you secure loans and carry out credit card transactions.