What Is a FICO Score
FICO is the most widely known credit score system developed by Fair Isaac Corporation. FICO Score is credit rating used by lenders to ensure that the borrower will be able to repay the money lent. This score is sum total of ratings of the three beaureaus – Equifax, Experian and TransUnion. These agencies score the borrower on the basis of information provided. The ratings change with the change in the information.
Credit scoring is mainly used by banks to decide upon the loan eligibility of the applicant. This score can also be used by other organizations like mobile service providers, insurance companies and landlords. FICO Score normally ranges between 300 and 900. Scoring high on credit worthiness increases the chances of getting loan. High score is also used to determine rate of interest at which loan can be granted.
FICO score helps lenders to assess the profitability of the borrower. It determines if the loaner can be a source of revenue generation to the lender. Normally a person scoring around 300 to 400 ends up paying $140 more than that scoring around 800 to 900. This is because of the difference in rate of interest that is applicable to these ranges.
Various countries have different agencies which are involved in research related to credit scores. FICO score is the oldest and the most widely used credit score to ascertain the risk involved in lending money. This score is based on the past ability to clear the loan. New credit scores launched by other agencies like ScoreLogix determine the creditworthiness on the basis of future ability to repay the loan. ScoreLogix makes use of factors like job stability, impact of economy and influx of income to write the credit score. FICO ratings do not consider income as a factor while establishing credit score.
In Austria, system of credit scoring is used to blacklist the defaulters. It is widely used by the telecom companies to enlist the customers who fail to pay the bill on time. In Norway, credit rating is done on the basis of demographic details along with taxable income, tax returns filed by the individuals.
USA uses credit score system extensively to ascertain the credit worthiness of consumers and borrowers. It is used by mortgage lenders to ascertain the possibility of mortgage loaner turning into defaulter. A mortgage lender is not interesting in confiscating the property. He is more interested in getting back the money lent. That is why; such indicators are used to assess risk parameters involved in the deal. FICO score is the traditional way of preparing credit score report. Alternative scores clubbed with FICO score are a complete picture of the credit worthiness of an individual approaching the bank or the lenders for financial help.