When a person applies for a loan of any kind, the lender often wants to check on the applicant’s FICO credit score range to determine creditworthiness. FICO scores are actually credit bureau scores, but the software that the credit bureaus use was developed by a business known as Fair Isaac and Company, which became abbreviated to FICO. Regardless of whether they are referred to as a “credit score” or a “FICO score,” the fact remains that the actual score determines what kind of a loan a person can plan on receiving.
For business purposes, a FICO score is used to determine the credit worthiness of an applicant. There are a number of elements in the score that are factored into figuring out a person’s credit score. There are actually three different FICO scores, with one coming from each of the three major credit bureaus — Experian, TransUnion, and Equifax. These three companies receive information about everyone in the credit system, and constantly update their records, based upon different elements, including late payments, delinquent accounts, credit card defaulting, and bankruptcy.
Many people wonder what’s in their FICO score. There are usually five elements that are considered during each reporting period:
1. Payment history
2. Amounts owed
3. Length of credit history
4. New credit
5. Types of credit used
Payment history entails various account information, including any adverse payment notices (such as late payments, delinquent accounts, and bankruptcies). Amounts owed show how much money is owed to all of the credit accounts. There is also the length of the credit history to be considered, with people with newer credit histories having lower FICO scores than those who have a longer credit history. In addition, the FICO score looks at how many new credit accounts have been opened. Lastly, the kind of credit is factored into the equation, including mortgages, car loans, retail accounts, and installment loans.
The credit score range determines the kind of loan that an applicant can expect, with applicants in the lower credit score range being less likely to be approved for a loan than those who have higher credit scores. A basic guide for understanding credit scores is as follows:
Credit Score Range Breakdown
450-500: This is a very low credit status. However, it can mean that an applicant has not built up any credit.
500-550: This is a low credit score, and while an applicant might receive credit, a higher interest rate might be attached to the loan.
550-600: While this is the next higher range, there are still a number of creditors who will insist on only providing a loan with higher interest rates.
600-650: This is where many Americans find themselves. As with the lower scores, there are some higher interest rates attached to the loans in this range, but by addressing any issues on a credit report, applicants in this range usually are able to move into the next higher credit range.
650-700: This is the range where most credit is available to an applicant. The interest rate is only slightly higher than the interest rates for applicants with perfect credit.
700-750: At this range, an applicant is near the top of the FICO scale, meaning there should be no problem with qualifying for most loans.
750-above: This is the superior credit range, with a wide range of loan options and interest rates available.
The good news, however, is that even the worst credit scores can be improved over time. It is simply a matter of examining one’s credit reports, contacting the various credit bureaus if incorrect information is found, and repairing any bad credit blips on the report by working with either the creditor or an authorized representative.