When it comes to buying a house or a car or getting a personal loan from the bank, you have to give the lender the access to your credit rating. As you continue to make credit transactions, you are creating a record which is referred to as credit history. Based on how well or badly you have been performing in those records earns you a credit score. The most used score in the US is the FICO score. When someone asks your credit score in the US, they are naturally referring to the FICO score. There are other models but they are not as popular as this one. Let’s get to know about it more.
What Is FICO Score?
As stated earlier, it is your entire credit history summarized in the form of a number. Looking at this number, one can easily say how sound or troubled you are financially. It is one of the many credit scoring models that are used around the country. The best thing is that it is the most popular one. Some new credit scoring models have recently emerged but they are not much different from this one. The term FICO comes from Fair, Isaac and Company. This company is all about analytics. It goes into data and performs analyses in many different forms. It is located in California and its credit scoring model is the most reliable and popular one in the US.
Some In-depth Knowledge of FICO Score
FICO score was introduced to make things easy for the lenders and the borrowers. You can’t go deep into the details of credit history of every person if you are a lender. What is a person is there only to ask you a few questions about home loans. You would not instantly ask them to provide their credit history to you. What you can ask though is the credit score which instantly gives you an idea how easily or hardly a person qualifies for a loan. The FICO score ranges from 350 to 850. In this range, 350 is the worse you can get and 850 means your credit history shows exceptional performance from you.
There are many other sub-ranges or brackets in that entire range. A person who has more than 700 points on this score is considered to be having a good credit score. If your FICO score is above 800, you could not have wished for anything better. The good range starts from 670 whereas you enter the exceptional credit score at 800. Things can get a bit blurry when you are in the middle ranges of the FICO score.
Why Use FICO Score
One of the most important questions you can ask at this point is why you should be using FICO score when there are so many other models. The first thing you have to know is that FICO score has been around for more than 25 years. During this time, this scoring model has gained all the popularity it needed to become more like a standard. Today, when you go to banks or any other financial institutions, you are likely to be asked for your FICO score. In simple words, when someone asks you your credit score, they are automatically asking for FICO score.
You can understand the importance and popularity of this scoring model from the fact that over ninety percent of the institutions in the US are using this model. There are many other scoring models but you will notice that they are not much different from FICO score.
FICO Score vs. VantageScore
There are three major credit bureaus in the US that keep the record of your credit transactions. When you talk about getting a credit report, you are automatically referring to the reports created by these three major credit bureaus. These are the bureaus from where the lenders pull your credit history as well. In an attempt to break the monopoly of FICO score, these credit bureaus came up with their own scoring model. However, you will be surprised to see how similar both these scoring models are. Due to their similarity, you the financial institutions did not really feel the need to switch from FICO score to VantageScore.
For example, the range of VantageScore starts from 300 and ends at 850 compared to that of FICO score that starts at 350 and ends at 850. The sub-ranges and brackets within the overall range are also quite similar. You will find only slight differences in there. You are in the good range on FICO score if you are at 670. On the other hand, using VantageScore model will put you in the fair category if you have a score of 670. The exceptional range, however, is bigger on VantageScore. It starts from 750 and ends at 850 whereas on the FICO score, your exceptional range is only from 800 to 850.
However, these are minor differences and so the people are not very willing to move from one scoring model to the other one. You can definitely take advantage of one or the other model depending on your situation. For example, a credit score of more than 750 makes you “very good” on the FICO Score. If you want your credit score to be called exceptional, you can use the VantageScore. However, there are a very few financial institutions that use any other credit scoring model than FICO score. That’s why it is better to get used to using FICO.
It is important that you check your FICO score as frequently as possible. You can do that easily online and pull your reports to know where you stand. You don’t have to worry about the online application form. It will require some personal information from you but it can be filled out within five minutes. There is no money to be paid to get your free credit report from the major credit bureaus. By knowing your credit score often you can always find out the factors that are affecting it positively so you can work on them.