Credit scores are used in loan requests, credit cards, mortgages, apartments, jobs as well as other services to determine whether to approve you or not and what interest rate to offer you. However, there is not always a single credit score that is used in checking in various contexts. It should be understood that there are essentially several credit scoring models and several types of credit scores. Well, whose record is accessed most frequently by lenders and any individuals conducting credit checks?
The FICO Score The FICO scores are a product of the Fair Isaac Corporation (FICO) and are held to be the most popular credit score used by lenders. Today, more than 90% of the top lenders turn to the FICO score as they consider consumer credit for granting loans and credit cards. It is also important to know that FICO revises its credit scoring model from time to time and there are several FICO scores such as FICO 8, and FICO 9. Any time a lender pulls your credit, they almost always look at one of these two FICO scores.
FICO Score Build FICO scores vary from 300 to 850, where every credit score that is above the others is considered to be less risky for the credit providers.
FICO scores take into account the five main factors below to determine your score:
- Credit account status – If you made payment for credit accounts in time. This has the most significant impact on the FICO score and makes up 35% of the total score.
- Amount of credit – On the ratio of the total credit available in revolving credit you are currently using. This is 30 percent of your score As you can see, these questions are the most important ones out of all of them.
- Length of credit history – A long credit history of installment loans and responsible credit use is considered ideal. This contributes 15 percent of the total score.
- Credit mix - Whether there is any credit history in handling credit cards and/or installment credits. This is a tenth of the score.
- New credit – Applying for several fresh accounts in a short amount of time can reduce your score temporarily. This is also one-tenth of the score. When they pull your FICO score, lenders have a snapshot of these aspects of credit use, which indicates likely future repayment behavior.
- FICO Industry-Specific Scores Apart from the regular FICO 8 and FICO 9 scores that are commonly used in most cases; there are over 40 FICO Industry-Specific Scores that are designed for use specifically by certain lenders in certain situations. For instance, there is the FICO Auto Score that is used to make credit decisions on auto loans and it factors some of the criteria in a slightly different way than the other industries to offer the best prediction of risk. Some other FICO scores developed based on certain categories of lending include the Bankcard Scores, Mortgage Scores, and the Installment Loan Scores amongst others. These are special FICO scores that are used when you apply for credit in those categories and not what is referred to as a base FICO score.
VantageScores The other sets of credit scores include those from VantageScore Solutions which is a close competitor of FICO. This scoring model also employs a score range of 300 to 850 like FICO and studies a great many of the same credit information factors. However there a minor differences that one can distinguish in their models as well as scores. While the FICO score is widely accepted and utilized by a greater number of lenders, VantageScore is also in use, primarily with online lenders together with other players within the financial technology industry. However, both of their scores are used to a lesser extent compared to FICO in general.
The Final Score Which Matters To The Consumers Even though lenders may use other score variations in different circumstances, as a consumer there is only one score which you must consider and that is your base FICO 8 score. This score provides an overview of your credit health that lenders assess when determining whether to approve your loan application or not and the interest rates to charge you. The FICO 8 score indicates a reasonable degree of transferability of the score across various lending markets. Thus, maintaining your FICO 8 score stable can be viewed as responsible credit utilization that will positively affect all the other scores you have. So please, make sure you check your FICO 8 at least every few months and start the way to change it for the better, just follow the rules of proper credit behavior. This places you in better standing when your credit rating is run during the critical credit reference during financial applications.
In conclusion, although there are other scores used by lenders in particular circumstances there is just one credit score most commonly used to make decisions, FICO 8. It is therefore advisable for any consumer to employ constant checks and a high FICO 8 score as the best shot one can give to have the best standing each time the credit facility is pulled for a loan or any other need. Always check your FICO, especially the utilization ratio; ensure all your bills are paid on time, and with a high credit score, you are good to go via all financial activities in life that require credit checks about major landmark events in one’s financial lifecycle.
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