FICO Score is one the most commonly used credit scoring models. These scores are used to assess risk for consumers and determine whether they should be granted a loan. 90 percent of lenders actually use at least one major version of FICO Score. These scores are based on a credit report, which contains information about a consumer's credit accounts and payment history. A number of factors affect the score, including the amount owed, the length of time since an account has been used, and a person's mix of accounts.
Typically, a FICO score is calculated by running a credit report through an algorithm, which assigns different weights to different indicators. For example, applying for new credit frequently has more negative impact than a few one-off late payments. The score does not necessarily reflect the same consumer. This means that each lender can have its own guidelines.
There are many versions of FICO Score. Each model has its own industry-specific variations. FICO 8 can be used by financial institutions. FICO 5, FICO 9, and FICO 6 are also available. While scores vary, they are based upon the same five elements.
FICO scores are based on the FICO score's most important factor, which is payment history. Lenders are interested in knowing that borrowers have made their monthly payments on time. Paying a bill on time every month can have a positive impact on a FICO score. However, missing payments repeatedly can have a negative effect on your FICO score.
FICO Score 8 includes some important changes that might cause you reconsider your credit usage. First, it provides a more accurate statistical representation of risk. One other change is that it's more open to single-time late payment. It is also more sensitive towards high credit card balances. Credit cards should be used to limit your credit utilization ratio to 30%.
Your credit score can be improved by adding authorized users to your cards. However, it can also become negative if you add strangers to your accounts. This is known to be "credit card pettybacking" and is not a good idea.
FICO Score 8, version 8 has also changed how it deals with collection accounts. Accounts with a balance less than $100 are no longer taken into consideration by the FICO Score 8 version. Credit reports can be affected for a long duration by collections accounts.
Despite many improvements, FICO Score 8 continues to be the most used score in credit lending. This score is used by lenders and credit card companies to assess the performance of borrowers applying for credit card loans. Your ability to get mortgages or work could be affected if your score is low.
FICO is always improving its scoring systems. All lenders have the ability to access the most recent version of FICO Score. This allows them to pick which one they prefer.