What is a good FICO score? The answer to this is more than just a single number. FICO, the Fair Isaac Corporation, will not specifically tell you what the most appropriate FICO score is. While confusing, this is often a question left up to each individual lender.
What Is a Good Fico Score to Your Lender
Each individual lender has the right to set limits on the scores they are willing to work with. For example, one lender may be willing to offer their lowest interest rates to those with a credit score of 705 while another company may be looking for those with scores over 750.
Lenders look at credit scores to decide when to offer a loan to an individual. The lender may also monitor credit scores to determine applicable rate changes, limit increases or decreases and to reassess the risk of the borrower. Therefore, it is important to ensure credit scores stay as high as possible even after you get the loan you are hoping for.
There are also several types of scores. These scores may be developed by independent companies or by the lenders themselves. The rule is that the higher the score is, the better it is. Keep these things in mind when considering what makes up a good credit score.
- Credit Reporting Agencies Handle Calculations: Each of the credit reporting agencies calculates a credit score for each borrower. Each of these credit scores may be slightly different from the next. This is due to variations in the credit history each agency has on file. Mortgage lenders often compare all three of the top national credit reporting agencies. Most credit card lenders base their decision to lend from one credit agency's score.
- Just Estimates: Credit risk scores are the official scores used by lenders. What is given to the consumer is often an estimation of these scores. They are generally very close to the actual score. When requesting a credit score, ask the agency to tell you if it is just an estimation or if it is the actual score used by lenders.
- Credit Scores Change: Note that credit scores change often. A credit report may be updated as often as once a month. This also changes the credit score. This is good news because it means you can see a change when you consistently work to improve your credit score.
Fair Isaac Interpretations of a Good Credit Score
FICO offers some guidance in what a good credit score is. The FICO score scale ranges from 300 to 850. Lenders are looking at a score that is above 700 which is considered a strong financial health number. A credit score below 600 indicates an individual is high risk.
To help you to understand how credit scores are rated, FICO provides information on what makes up the score. Using this information, you can also see why a high credit score is important.
- Payment History: The payment history makes up 35 percent of FICO score. Lenders want borrowers who pay on time each month.
- Amount Owed: The amount you owe on your accounts makes up 30 percent of your score. The number of accounts with balances and your available credit on each one, plays a significant role. Lenders like to see those who have access to credit who are not maxed out. The higher the amount of money is owed, the more risk involved to the lender.
- Credit History: How long you have had credit and used it wisely accounts for 15 percent of the FICO score. High credit scores often take time to build. Lenders want to ensure their borrowers have experience borrowing and paying off credit.
- Number of New Credit Lines: The number of new accounts factors in at 10 percent of the FICO score. Lenders look cautiously on those who open too many accounts.
- Types of Accounts: Mortgage loans, credit cards, bank cars and other types all play a role in your financial health. A healthy mixture of these accounts will account for as much as 10 percent of your FICO score. Lenders look for borrowers with varied credit experience.
To answer the question "What is a good FICO score?", individuals can use the information provided by FICO. It is also appropriate to contact the lender and ask them directly what number they are looking for. A high score may equate to reduced interest charges.