Six lesser known facts about the FICO credit scores
Credit scores are significant for any person who depends upon borrowed money to avail possessions like a car or home and to obtain a credit card. The FICO credit score is the most widely relied upon credit score in the market. The lenders rely on it, and that is one reason why you need to have definite ideas about the FICO scores if you are planning to borrow money recently.
The Following Are Ten Lesser-Known Facts About FICO Credit Scores:
1. FICO score relies upon five types of information
The formula that is used to calculate the FICO score has always been kept a secret. The only thing that is known is that there are five categories of information used to calculate FICO scores with separate weight given to each of the categories. The five categories are payment history (35 percent), credit history (15 percent), amounts owed (30 percent), new credits (10 percent), and credit mix (10 percent).
2. It is possible to have no FICO scores at all
There is some basic information needed to generate the FICO scores for any person. Your credit report must have an account open for at least six months or more with at least one account reported to the credit bureau within the last six months. Obviously, the credit report cannot indicate that you are deceased. Without meeting all of these criteria, a person cannot have a FICO score.
3. It is an indicator of whether you can be a delinquent
The prime reason for lenders to use FICO scores while making lending decisions and setting the interest rate according to your scores, is to determine your chances of becoming a defaulter on the loans. The FICO data states that, the consumers who have a FICO score of 800 or more have 1 percent chance of being later on an account. On the other hand, the consumer who falls in the 650-699 categories has around 15 percent chance of delinquency.
4. The average FICO score is about 700
The credit score range for FICO lies around 300 to 850 and most of the people fall in the 500 to 800 range, as claimed by https://aaacreditguide.com/fico-credit-score-range/. The FICO data shows the average consumer has a credit score of 700 which, in FICO terms, is a good score though it is nothing great. The data further states that consumers generally have six open revolving credit accounts and all of those have outstanding balances. The average consumer ends up using 15 percent of the available credit.
5. Achieving the perfect FICO score is not impossible
The highest FICO score of 850 though difficult but is not impossible to achieve. About 0.5 percent of consumers have actually managed to reach the score. Getting the perfect FICO score is more about common sense and discipline than any tricks. Things like not carrying credit card balances, not opening more accounts than needed, and paying all of the bills on time goes a long way in improving the FICO scores.
6. Maxing out on a credit card can have significant impact
It needs no explanation that maxing out on a credit card is not really a responsible behavior credit-wise. Maxing out on just one of your credit cards can drop the score by 20 to 45 points, as claimed by FICO. This would hurt your chances of being a credible borrower in the eyes of a lender, and many banks might just refuse to give you a loan.
You will be in a better position to rectify your credit score issues after these six factors are known to you. Make the necessary changes to be a reliable borrower to any financial institute.