In analyzing credit applications for mortgages, auto loans, personal loans, or credit cards most lenders look at the FICO score, a three-figure number that provides a summary of the credit risk of the applicant. This brings up the question: which FICO score do they use? Contrary to what many people believe, there isn’t one FICO score – there are actually over thirty different FICO scores, each of which is designed to calculate creditworthiness for different types of lending. Read on to discover which FICO scores are used most often by banks.
The FICO Scoring Model
First, it is important to know what FICO scores are in the first place. FICO scores are between 300 and 850, which are generated through data in a credit report of an individual. One’s credit activity and payment record is managed by three credit reporting agencies namely; Experian, Equifax, and TransUnion. Specific factors that influence a FICO score include: Specific factors that influence a FICO score include:
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Credit history – records the payment behavior where the client has made one or both ends of the bargain untimely.
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Credit utilization ratio – compares the amount of outstanding credit to the amount of credit available.
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Credit history length – refers to the number of months of credit history.
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Credit mix – assesses various credit obligations in the form of credit cards, and loans, among others.
New credit applications – reflects the number of new accounts and the period within which they were opened.
Holders of higher scores are seen by lenders as less credit risky, hence thereby portraying that an applicant is credit risky whenever scores are low. It is, however, important to note that a large number of FICO scores range from 600 to 750.
It is important to note that there is not one FICO score per person. Instead, the FICO scoring model generates various credit scores depending on the particular kind of score being applied. The Auto FICO will be utilized by auto lenders and Mortgage FICO will be used by mortgage lenders. This is beneficial to the lenders since it gives them a clearer picture of how the applicant manages that certain line of credit.
FICO Scores Used Most Frequently
Most significant lenders employ three basic FICO score ranges: Most important lenders employ three basic FICO score ranges:
FICO Score Eight FICO Score 8 is the most often used and reported FICO score variant among the other ones. Consumer credit risk assessment for this basic FICO score depends on Equifax, Experian, and TransUnion data. With about 90% of lending organizations utilizing FICO 8 for credit cards, auto loans, personal loans, and student loans, it is the most often used score by lenders right now.
FICO Auto Grade 8 Like its name, car Score 8 is meant to provide car lenders with an evaluation of an applicant's credit risk. Analyzing a buyer's past on vehicle credit accounts helps auto lenders concentrate on his or her ability to handle automobile loan payments. The FICO Auto Scores are used in the United States of America by about ten thousand lenders.
FICO Card Score: 8 The FICO Bankcard Score ignores any other credit products and only considers credit card payment behavior. Released with this industry-specific score known as the Bankcard Score, the FICO 8 model allows credit card firms to have a more adjusted perspective of the applicant's risk levels for managing revolving credit card balances.
What FICO Score is Good?
One should be aware that not all lenders will approve an application even if a person has a decent FICO score. Many lenders want to lend to customers within a minimum and maximum credit score range. The FICO score ranges many banks search for are broken out here: Many banks search for FICO score ranges, which are laid out here:
Excellent Credit: 750-850 Good Credit: 700-749 Fair Credit: 650-699 Poor Credit: 600-649 Bad Credit: Below 600
Generally speaking, most lenders see all candidates with a FICO score over 700 as eligible regarding credit scores. Those with FICO scores of seven hundred forty or over or with outstanding credit ratings are the favored borrowers. Based on the risk a certain lender is ready to accept, every single lender develops his/her credit score standards.
FICO claims that while the median score in the United States is somewhat higher at 723, the mean credit score is 710. That suggests that although half of the customers will typically spend somewhat less than that standard, the other half will spend somewhat more. In this sense, most individuals have decent rather than exceptional credit even if one may have an 850 FICO. Knowing the FICO score ranges that lenders have can help customers create goal objectives when trying to rehabilitate credit before applying for a loan.
Reviewing the FICO Score That Lenders Consider
When you get your credit score on your smartphone or through an online credit site, the model you are seeing is likely FICO Score 8 or a variation of it. This can be different from the industry-specific FICO score that creditors employ when considering your loan request. If you are unsure of your credit rating or it is almost average, you can call the lender and inquire about the FICO score they use and the minimum score they accept before considering the application. This lets you verify which particular FICO score source is checked in advance to see your odds at the start.
While checking your credit score is always advisable, keep in mind these key facts about FICO scores:
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Unlike other credit scores, there is not one definite FICO score
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Credit card, auto, and mortgage lenders all use the FICO score which is based on industry-specific and underwriting standards.
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FICO 8 is the most prevalent base FICO score that many lenders continue to employ.
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For instance, it is believed that if a person has a FICO score of over 750, they have good credit.
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Borrowers usually have above-average credit scores between 700 and 749.
This is especially important in the sense that it would be very disappointing to go for a checkup only to be denied at the end.
This knowledge of what FICO score lenders review assists in knowing what to expect before applying for new financing. Review any significant applications for credit and check the free credit report once every 12 months to keep your score top-notch. Monitoring your score helps in preparing for the next step when you desire a loan or a new credit card account.
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