FICO scores are used in 90% of credit decisions to accurately understand your credit risk as a borrower. When you are obtaining financing, lenders use your FICO score, financial situation (income, job status) and type of credit requested to make better credit lending decisions, which ultimately determine your approval and rates.
The factors that influence your FICO score are:
- Payment history - 35%
- Accounts owed - 30%
- Length of credit history - 15%
- New credit - 10%
- Credit mix - 10%
What does your FICO score range mean to you?
FICO scores generally range from 300 to 850. The range you fall into may affect the process of how you obtain credit and your credit terms. Moving from one range to the next could save or cost you thousands next time you want to apply for a home loan, car loan, student loan or other credit obligations. The higher the score the less risk you hold, the better credit terms you’ll have.
Which FICO Credit Score Range Do You Fall in?
800 + = Exceptional
- Well above average
- You may encounter an easy approval process
- Likelihood of delinquent payments*: 1%
740-799 = Very Good
- Above average
- You may qualify for more favorable interest rates
- Likelihood of delinquent payments: 2%
670-739 = Good
- You are an “acceptable” borrower
- Likelihood of delinquent payments: 8%
580-669 = Fair
- Below Average
- You may be a subprime borrower and your interest rates are more likely to be higher
- Likelihood of delinquent payments: 28%
579 and lower = Poor
- Poor credit
- You may be rejected for credit or require additional fees when applying
- Likelihood of delinquent payments: 61%
Keep in mind there are other factors that determine your credit terms, so you’ll need the whole package to be successful. However, your FICO score is a key component to determining your opportunities as a borrower. It is essential to lenders because it helps determine the level of risk involved in the lending process. Are you in good standing? Even if your score could use some help, the first step to a good score is understanding your financial situation and assessing your current FICO score. Once you have the understanding, you can make the necessary changes to grow and achieve your financial goals. Changing your score starts with you!
* Delinquent payments are considered late or overdue, the percentage is an approximate value.