A lot of lenders check the borrower’s FICO score to evaluate credit risk and determine whether the borrower is deserving to get a loan extension. The FICO score is a type of credit scoring developed by the California-based data analytics company, Fair Isaac Corporation.
The company’s standard of assessment to get an individual’s FICO score is based on the information of the loan applicant’s credit profile. Your credit payment history, length of credit history, present indebtedness, types of credit used, and latest credit accounts are the prime factors in calculating your FICO rating.
Each of these five elements in determining your FICO score has its level of importance represented by a percentage. The largest percentage goes to your history of credit payments (35%). This is followed by your current indebtedness (30%), credit history duration (15%), latest credit (10%), and credit mix (10%).
So, if you have many late payments throughout your credit history, this negative information will drag down your FICO rating. But, if your track record of credit payments is good, you’ll get a passing FICO score.
Your FICO score can have an impact on how much you can borrow from the lender, what will be the cost of your interest rate, and how long you have to repay what you owe. That’s why you should establish or reestablish your credit profile to get an excellent FICO score and get a favorable loan amount, interest rate, and loan repayment term.
FICO scores can range from 300 to 850. You have an excellent FICO rating if you go beyond the 650 mark. If you get a score below 620, there’s a high chance that your lender won’t approve your loan application. Along with your FICO score, your lender may also check your current employment status and the volume and frequency of your income.
Make sure to study this infographic from Siloans to learn more about this type of credit scoring created by Fair Isaac Corporation.
Source: Siloans.com
