The FICO Score is a credit score developed by the Fair Isaac Corporation (FICO), which is widely used by lenders to assess the creditworthiness of individuals. The score is based on the individual's credit history and other financial behavior.
FICO Scores are used by many lenders, such as banks, credit card companies, mortgage lenders, and other financial institutions, to make informed decisions about extending credit or loans.
Key components that influence a FICO Score include:
Payment History (35%): This is the record of your payments on credit accounts, including credit cards, mortgages, and other types of loans. Timely payments positively impact your score, while late payments, defaults, and bankruptcies can have a negative effect.
Credit Utilization (30%): This is the ratio of your current credit card balances to your credit limits. High credit utilization can negatively impact your score, as it may indicate a higher risk of default.
Length of Credit History (15%): The length of time your credit accounts have been established is considered. Generally, a longer credit history is viewed more positively.
Types of Credit in Use (10%): This includes the various types of credit accounts you have, such as credit cards, installment loans, and mortgages. A diverse mix of credit can have a positive impact on your score.
New Credit (10%): Opening several new credit accounts in a short period can negatively impact your FICO Score, as it may be interpreted as a sign of financial stress.
FICO Scores typically range from 300 to 850, with higher scores indicating better creditworthiness. Here's a general breakdown of FICO Score ranges:
Exceptional (800-850)
Very Good (740-799)
Good (670-739)
Fair (580-669)
Poor (300-579)
Lenders may use FICO Scores along with other factors to make lending decisions. Individuals need to be aware of their credit scores and take steps to maintain or improve them, as a higher credit score can lead to more favorable interest rates and terms on loans and credit.
Individuals are entitled to a free annual credit report from each of the major credit reporting agencies (Equifax, Experian, and TransUnion), and it's advisable to review these reports regularly to check for any inaccuracies or discrepancies.
FICO Score in India: FICO, a California-based analytics software firm, has launched FICO Score in India, providing credit scoring services in the country.
The FICO Score X Data India is based on non-traditional information such as a person's digital social media and smartphone records. This non-traditional scoring method helps Indian lenders tap a larger section of the market, which includes the underbanked and unbanked population.
FICO's twin rating solution, which combines FICO Score X Data and FICO Score, is a better risk evaluation methodology that takes into account various risk factors. The score range is 300–850, with a higher score indicating a better credit history.
Lenders in India use credit scores from either of the four credit bureaus - Experian, Equifax, TransUnion CIBIL™, or CRIF Highmark. FICO Score has recently entered the Indian lending market, offering lenders a more comprehensive evaluation of the borrower's credibility.
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