FICO Score: Meaning, Types & More

Credit Scores are an important part of our financial lives. They ensure we are financially sound, and allow us to plan for a stable future. 

In India, lenders employ several types of credit score rating systems, of which the FICO score is the most unfamiliar. In this article, we will explore the FICO score meaning, its types, and the factors influencing it.

What is FICO Score?

FICO score is a type of credit score, used to determine the creditworthiness of the borrower. 

A FICO Score is a three-digit number calculated using the information in your credit reports. It assists lenders in determining whether you are likely to repay a loan. This, in turn, influences how much you can borrow, how long you have to repay, and how much interest rate you will be charged.

When you apply for credit, lenders require a quick and consistent way to determine whether or not to lend you money. In most cases, they will consider your FICO score.

What Is FICO Score Full Form?

FICO stands for Fair Issac Corporation. It is a type of credit score developed to assess the risk factors associated with lending. 

While FICO is used extensively in the US, in India, the credit score developed by TransUnion CIBIL is preferred. However, FICO has forayed into the Indian market recently.

What Are The Factors Affecting FICO Score?

The FICO score of an individual is determined mainly based on the following factors - 

• History of Repayment (35%) 

• Amounts Owed (30%)

• Length of Credit History (15%)

• New Credit (10%)

• Credit Mix (10%)

FICO Score Range & Ratings

Since your FICO score decides the approval rate of the loan, it is crucial to have a score that is acceptable to the lender. In general, FICO scores are classified as exceptional, very good, good, fair, and poor. 

The below table summarizes the ranges and ratings of the FICO score. 

What is a Good FICO score?

Any score of 670 and above is considered a good FICO credit score.

However, getting your FICO credit score up into the very good or exceptional range is the best way to get lower interest rates, better rewards, and more favourable loan terms.

To be financially stable, it is crucial to build a good credit score. However, getting your credit score into the good FICO score range is just the beginning. You must strive to build it up to very good or above to be financially healthy as a whole.  

This is because lenders understand that borrowers with good credit are unlikely to default on their payments.

What Are The Different Types of FICO Scores Available?

FICO scores use information from your credit report to predict your likelihood of paying bills on time. FICO scores are commonly used by lenders to determine whether or not to extend credit to consumers.

As FICO's credit scoring models are constantly updated, there are many different FICO scores. They are -

• FICO 2

• FICO 3

• FICO 4

• FICO 5

• FICO 8

• FICO 9

• FICO 10 & 10T

Here are the FICO scores and the types of credit the scores are associated with. 

Conclusion

FICO scores are one of the most commonly used credit scores today, and there are several variations of them. Regardless of the FICO scoring model used, the same rules apply to maintaining a good score. These include paying bills on time, maintaining a low credit utilisation ratio, and applying for new credit sparingly.