A FICO score isn't a person, but rather a numerical representation of your creditworthiness. It's a tool used by lenders to assess the risk of lending you money.
Here's a breakdown of what a FICO score is:
- Definition: A FICO score is a three-digit number (ranging from 300 to 850) that summarizes your credit history.
- Purpose: Lenders use it to quickly evaluate your credit risk and determine whether to approve you for a loan, credit card, or other forms of credit. They also use it to set interest rates.
- Use: According to the provided reference, FICO scores are used in 90% of mortgage application decisions in the United States.
- Range and Interpretation: Scores typically range from 300 to 850. Generally:
- Excellent: 800-850
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
What Determines a FICO Score?
FICO scores are calculated using information from your credit reports. The exact formula is proprietary, but it generally considers the following factors:
- Payment History: Whether you've made past credit payments on time. This is a major factor.
- Amounts Owed: The total amount of debt you owe, and the proportion of your available credit that you're using (credit utilization).
- Length of Credit History: How long you've had credit accounts open.
- Credit Mix: The variety of credit accounts you have (e.g., credit cards, installment loans, mortgages).
- New Credit: Recent credit applications and new accounts.
In summary, a FICO score is a vital tool used by lenders to assess your creditworthiness and make informed lending decisions. It’s not a person, but a numerical summary of your credit history.
