Most borrowers are aware of the “FICO score” term. You might have come across it in the banking or credit statements. However, do you really understand what it means? Do you know what parameters are used to determine a credit score or rating also known as FICO? Let’s figure them out.
FICO score is the crucial parameter for lenders to determine the level of borrower’s creditworthiness. Loan providers use it to decide if you are reliable enough to get a loan or not. The term represents the abbreviation for the Fair Isaac Corporation that refers to no credit financing. The company has been known for implementing its unique techniques to evaluate your credit score using some key parameters. We are going to review some of them
Parameters to Define the FICO Score
As a rule, lenders use a set of essential issues to determine the FICO score. They include 5 baseline parameters. They are as follows:
– Borrower’s Responsibility – This particular parameter is determined by the information from your payment history. In other words, it represents the track record of all your payments reflecting the ability to cover the bills on time. The fewer delays in payments you have, the higher response rate you get.
– CUR – Those letters stand for credit utilization ratio. It depicts the percentage of all credits you are accessing right now or have access within a specific period. It is recommended not to have more than $30.000 of current credit ratio at a time.
– Credit History Length – The parameter shows the time you have been involved in crediting. Having an old credit account can be good for your creditworthiness.
– New Accounts – New credit accounts can be to the detriment of your FICO score. The more new accounts you open the lower level of creditworthiness you get.
Those are only some of the fundamental issues considered by the lenders. The list may additionally include the combination of different credits you might access. Keep an eye on your score and pay on time.