CREDIT

Mar 23 2020

Credit score and fico score difference #Credit #score #and #fico #score #difference



Credit score and fico score difference

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My Financial Future

We are used to seeing scores on sports channels. However, when we refer to a credit score, we are talking about a very different type of game: The personal finance game where getting a goodscore” represents how likely we are to be reliable borrowers and re-payers. That is exactly what a FICO® score tries to estimate, the likelihood we will pay our debts back on time.

There are many types of credit scores developed by different companies. The FICO® score, developed by Fair Isaac Corporation, is one of the most commonly referenced scores, and we will examine this particular one in this post.

How is a FICO® score calculated?

Your FICO® credit score is calculated from your FICO® credit reports (learn the difference between a score and report). The FICO® score is composed of three digits (between 300 and 850), and it is calculated by a math formula that takes into account the following factors:

It deserves a mention that the importance of each factor varies per person, their credit record, and other external factors.

An explanation of each concept:

Your payment history This is one of the most important factors and it takes into account if you have paid past credit accounts (loans) on time.

Amounts owed FICO® points out that “owing money in a credit account does not necessarily mean you are a high-risk borrower with a low FICO® Score.” Everything will depend on the amount of credit you use compared to the amount you could use (called the “credit utilization ratio”). The best option, according to FICO®, would be “using a low percentage of your available credit.”

Length of credit history In general, the longer your credit history, the better, according to FICO®. However, “even people who haven’t been using credit long may have high FICO® Scores, depending on how the rest of the credit report looks.”

Credit mix in use FICO® scores will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. At only about 10% of importance to your overall score, this is not the most important factor but it could be relevant if your credit report does not have a lot of other information on which to base a score.

New credit Research shows that opening several credit accounts in a short period of time represents a greater risk – especially for people who don’t have a long credit history. Your FICO® Scores look at how many new accounts you have by type of account.

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