FICO Scoring Model is the most accurate and reliable model to calculate your credit score. Let’s learn in-depth about this model and how it influences your credit score.
What is the FICO Score model?
This scoring model was created by the Fair Isaac Corporation (FICO) for lenders and borrowers to identify creditworthiness and assess the risk. FICO Scores are presented in the form of three-digit numbers that are based on information provided by your credit reports.
- This scoring technique allows lenders to determine how likely their customers are to repay a loan. We have many models to calculate the credit score, but the FICO score model is rated as the most accurate and reliable.
This scoring model has been in use since 1989 and there have been various revisions over the last three decades to determine an accurate credit score. Till now FICO score model has helped millions of people in determining their credit scores accurately.
- You need to first check your FICO score prior to making an investment; whether you plan to buy a house, enroll for a degree, looking for employment opportunities or cover your medical expenses. Some insurance and utility companies also believe in checking a client’s credit scores before investing.
If your FICO Score is good, you are likely to save thousands of dollars off of interest and fees. Mainly because lenders extend lower rates if they perceive you as less risk for them.
Factors Affecting Credit Score
FICO scores are calculated by using different aspects of credit data. This data is directly affected by your credit scores. Let’s take a look at the factors that have an impact on your credit score.
- Payment history makes up 35% of your score. A good payment history means not having any negative public records like any liens, lawsuits, bankruptcies, etc. If you make payments on time every month then you will do very well in this category. The more delayed the payment, the more your score is penalized.
- The second factor is credit utilization; it consists of the next 30% of your FICO score. A $2,000 limit on a credit card means spending is limited to less than $600 a month. That means FICO encourages using 30% or less of your available credit.
Pro-tip for getting a better score; even if you intend to pay off the bill every month, do not spend close to your credit limit.
- The third factor that affects your credit score is credit history, counting for 15% of your score. It’s dependent on the duration i.e for how long you own a credit card. The longer you possess a credit card, the higher your score gets. If only you make sure to pay it off every month.
The next factor that affects your credit score is the credit use which is worth 10% of your credit score. For keeping your credit score healthy, use several different cards and debts on your report. Do not apply for a big sum of credit in a short period, it poses a negative impact on your score.
- The last category that affects your score is new credit, which is the last 10% of the score. Applying for too much credit may indicate that you are using one to pay off. For better credit scores, demand new credit gradually.
Final Verdict – Fix your Credit score
Maintaining your credit score is really important and the FICO score model has successfully helped millions of people in doing so.
Planning to fix your credit score? Credit Repair Today can help you fix your credit score. Credit Repair Today is a licensed credit repair service offering credit restoration all across the United States.