What is a FICO score?
Thinking about buying a house, leasing a car, or taking on some other type of debt? When you apply for a loan, a credit card, car loan, or mortgage, the banks or lenders want to know what risk they'd take by loaning money to you. Higher FICO scores means you have good credit, lower scores may mean you have poor credit and are a higher risk. Are you looking for ways to Raise your FICO Score.
FICO® scores are the credit scores most lenders use to determine your credit risk. You have three FICO scores, one for each of the three credit bureaus: Experian, TransUnion, and Equifax. Each score is based on information the credit bureau keeps on file about you. As this information changes, your credit scores tend to change as well. Your 3 FICO scores affect both how much and what loan terms (interest rate, etc.) lenders will offer you at any given time. Taking steps to improve your FICO scores can help you qualify for better rates from lenders.
FICO scores are designed to measure the risk of default, by taking into account various factors. Although the exact formula for calculating the FICO score is a closely guarded secret, the following components and the approximate weighted contribution of each:
- 35% punctuality of payment in the past
- 30% capacity used: the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
- 15% length of credit history
- 10% types of credit used (installment, revolving, consumer finance)
- 10% recent search for credit and/or amount of credit obtained recently
If you would like to get an estimate of your FICO score you can to the FICO Esitmate calculator at Bankrate.com.
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