How A Strong FICO Strategy Can Help Open Doors to Financial Stability

One of the important steps in managing your personal financial matters is understanding and managing your FICO scores. Here are a few components that can assist you.

MyFICO is a helpful resource, and this article makes use of some of the material.

What Is A FICO Score And Why It Matters. 

A FICO Score is a three-digit number based on the information in your credit reports. It helps lenders determine how likely you are to repay a loan. This, in turn, affects how much you can borrow, how many months you must repay, and how much it will cost (the interest rate).

When you apply for credit, lenders need a fast and consistent way to decide whether to loan you money. In most cases, they’ll look at your FICO Scores.

You can think of a FICO Score as a summary of your credit report. It measures how long you’ve had credit, how much credit you have, how much of your available credit is being used and if you’ve paid on time.

Not only does a FICO Score help lenders make smarter, quicker decisions about who they loan money to, it also helps consumers get fair and fast access to credit when you need it. Because FICO Scores are calculated based on your credit information, you have the ability to influence your score by paying bills on time, not carrying too much debt and making smart credit choices.

Thirty years ago, the Fair Isaac Corporation (FICO) debuted FICO Scores to provide an industry-standard for scoring creditworthiness that was fair to both lenders and consumers. Before the first FICO Score, there were many different scores, all with different ways of being calculated (some even including gender and political affiliation).

Although each credit lender decides for themselves their willingness to lend for a given score, some general levels of ranking are:

580 Poor Your score is well below the average score of U.S. consumers and demonstrates to lenders that you are a risky borrower.
580-669 Fair Your score is below the average score of U.S. consumers, though many lenders will approve loans with this score.
670-739 Good Your score is near or slightly above the average of U.S. consumers and most lenders consider this a good score.
740-799 Very Good Your score is above the average of U.S. consumers and demonstrates to lenders that you are a very dependable borrower.
800+ Exceptional Your score is well above the average score of U.S. consumers and clearly demonstrates to lenders that you are an exceptional borrower
FICO Scores range from 500 – 800

There is recent news that some lenders are moving away from FICO, according to people familiar with the matter. The Wall Street Journal recently reported that Capital One Financial Corp. and Synchrony Financial don’t use FICO scores for most consumer-lending decisions. They are becoming a smaller factor in some underwriting decisions at JPMorgan Chase and Bank of America.

The article also pointed out that a key financial regulator is encouraging banks to de-emphasize credit scores in an effort to expand access to affordable credit. And housing-finance giants Fannie Mae and Freddie Mac are considering allowing lenders to use other scores when evaluating mortgage applicants.

However, FICO scores remain the gold standard for rating creditworthiness, so it’s still recommended to manage your score wisely. 

What You Can Do To Improve Your FICO Score.

Show that you can manage your debt wisely. Firstly, investigate what initial forms of debt are in play with your household. Do you have credit cards? Do you have a car loan? Do you have a mortgage on your home? 

Obtaining credit as a start may rely on a FICO score, likely based upon income, steady income from work and other personal information. But once you have a FICO score, generated from your lender feeding the FICO database, you can then demonstrate reliable behavior managing your debt.  

For example, if you use credit cards, pay them down religiously, paying the entire statement balance shortly after the due date. Even if you do not need a credit card, it’s a good way to start working on a FICO score in that having some manageable debt enables you to demonstrate good habits. DO NOT miss a due date to make a payment. If avoidable do not have remaining balances and pay down the full balance due avoiding the high-interest cost of borrowing leftover balances.

Other Steps:

Consider paying down a loan.  There is a FICO® Score Simulator that helps you explore the potential impact of your decisions on your credit before you make them.

See What’s Affecting Your Score

Take the mystery out of your credit score. See the top factors that determine your FICO Score along with detailed analysis, so you know what to work on to get ready for your loan. Plus, learn how your score compares to those of top scorers.

What Does The Abbreviation FICO Mean?

FICO (legal name: Fair Isaac Corporation), originally Fair, Isaac and Company, is a data analytics company based in San Jose, California, focused on credit scoring services. It was founded by Bill Fair and Earl Isaac in 1956.

Looking Back On History Of Credit Scoring:

Where does it come from?Back in the 1800’s, most credit was conducted by businesses, not consumers. As business transactions increased, commercial lenders needed to create a way to standardize credit evaluation. In 1841, the Mercantile Agency solicited information from correspondents throughout the country to systemize a borrower’s “character and assets”. In the end, this data was considered too subjective as many of the opinions noted racial, class and gender biases. Subscribers to the Mercantile Agency (renamed R.G. Dun & Co.) and its rival, the Bradstreet Company, demanded a simplified evaluation method. It was during this time that two important things happened: the two companies merged into Dun & Bradstreet and an alphanumeric system for credit evaluation was created.

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