How to Understand an Applicant's FICO Score


Every adult has heard about credit scores. Everyone knows to be careful with paying bills on time to keep their credit in good standing. However, many have never looked beyond the surface to understand where the score comes from and what story the sacred number tells lenders, landlords, or potential employers. Let's take a few minutes and cover the basics of understanding an applicant's FICO score.

TeamworkTo begin, a credit score gives a quick overview of an applicant's trustworthiness. The higher the score, the more likely it is that person will pay their bills and pay them on time. These scores were created by the Fair Isaac Corporation (FICO) in 1981. Three major credit reporting agencies (CRAs) track each person's payment history and report the activity to FICO. FICO then uses the following five criteria to determine that individual's score.

Criteria For FICO Score

  1. Payment History (35%): On-time and late payments on credit accounts, as well as public records related to non-payment such as evictions and bankruptcies
  2. Amount Owed (30%): Balance owed on installment loans and credit cards
  3. Length of Credit History (15%): Length of time of oldest accounts, newest accounts, and last time accounts were used
  4. Credit Mix (10%): Types of accounts, i.e. credit card, mortgage, installment loans, etc
  5. New Credit (10%): Number of new credit inquiries and recently opened accounts

The classic FICO scores used today fall into a range from 300-850. This was established for lenders and consumers to have an easy to follow mathematical frame of reference to follow. Take a look at each scoring range and note what it can tell you at a glance.

Breakdown of FICO Scores

  1. 800+ = in top 20% of US consumers, exceptional borrower
  2. 740-799 = in top 40% of US consumers, dependable borrower
  3. 670-739 = considered an average US consumer, considered a good credit score
  4. 580-669 = in lowest 40% of US consumers, some lenders may approve credit at a higher rat
  5. Below 580 = in lowest 20% of US consumers, a very risky borrower

For more information or clarification on these scores and how to use them, contact us today. We want to help you understand your applicants' FICO.

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