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FICO Score

FICO score is one to the measures that are used by the lenders to assess the credit risk of an applicant, and then decide whether to extend loan to them or not. FICO score makes an important part of the credit report. An acronym for Fair Isaac Corporation, the FICO score is one of the types of credit score. It is named after the creators of the FICO score, and was introduced the first time in 1989. The system of FICO score is used widely these days by most of the credit providers, and banks before they provide loan to any consumer.

More about FICO Score

There are five areas that are taken into account when it comes to calculating the FICO score of any applicant. These areas include current level of indebtedness, payment history, length of credit history, types of credit used, and new credit. Within these areas, there are a number of factors that are taken into account, and calculated through mathematical models before it is decided whether loan should be given to a certain person or not.

The range of the FICO score of a person is generally between the ranges of 300 to 500. A FICO score of above 650 depicts that the concerned individual has a very good credit history, and lending money to such a person is highly recommended. On the other hand, if the FICO score falls below 620, it becomes difficult for the person to obtain financing, and that too at a favorable rate.

FICO score, also known commonly as the credit score is used by credit card companies, and banks to evaluate, and determine the risk that is posed by lending money to a specific consumer. With a widespread use of FICO scores done by the credit companies and banks, credit has become more widely available and in less expensive rates across many countries.

The FICO and other credit scores are widely used because they are largely reliable, and fairly inexpensive; however, they too have some shortcomings like:

  • They are not very good predictors of risk
  • Can be gamed easily
  • Is used in employment decisions

Other than these concerns, FICO score is widely used all over the world when it comes to checking the credit worthiness of a consumer.


Further Reading


Does Knowing Your FICO Score Change Financial Behavior? Evidence from a Field Experiment with Student Loan Borrowers
www.mitpressjournals.org [PDF]
One in five consumer credit accounts incur late fees each quarter. Evidence on the efficacy of regulations to improve behavior through enhanced disclosure of financial product attributes is mixed. We test a novel form of disclosure that provides borrowers with a …

Payday loans and credit cards: New liquidity and credit scoring puzzles?Payday loans and credit cards: New liquidity and credit scoring puzzles?
pubs.aeaweb.org [PDF]
One in five consumer credit accounts incur late fees each quarter. Evidence on the efficacy of regulations to improve behavior through enhanced disclosure of financial product attributes is mixed. We test a novel form of disclosure that provides borrowers with a …

Cognitive abilities and household financial decision makingCognitive abilities and household financial decision making
www.aeaweb.org [PDF]
One in five consumer credit accounts incur late fees each quarter. Evidence on the efficacy of regulations to improve behavior through enhanced disclosure of financial product attributes is mixed. We test a novel form of disclosure that provides borrowers with a …

Learning to cope: Voluntary financial education and loan performance during a housing crisisLearning to cope: Voluntary financial education and loan performance during a housing crisis
pubs.aeaweb.org [PDF]
One in five consumer credit accounts incur late fees each quarter. Evidence on the efficacy of regulations to improve behavior through enhanced disclosure of financial product attributes is mixed. We test a novel form of disclosure that provides borrowers with a …

Stability in consumer credit scores: Level and direction of FICO score drift as a precursor to mortgage default and prepaymentStability in consumer credit scores: Level and direction of FICO score drift as a precursor to mortgage default and prepayment
www.sciencedirect.com [PDF]
One in five consumer credit accounts incur late fees each quarter. Evidence on the efficacy of regulations to improve behavior through enhanced disclosure of financial product attributes is mixed. We test a novel form of disclosure that provides borrowers with a …

Regulating consumer financial products: Evidence from credit cardsRegulating consumer financial products: Evidence from credit cards
academic.oup.com [PDF]
One in five consumer credit accounts incur late fees each quarter. Evidence on the efficacy of regulations to improve behavior through enhanced disclosure of financial product attributes is mixed. We test a novel form of disclosure that provides borrowers with a …

From new deal institutions to capital markets: Commercial consumer risk scores and the making of subprime mortgage financeFrom new deal institutions to capital markets: Commercial consumer risk scores and the making of subprime mortgage finance
www.sciencedirect.com [PDF]
One in five consumer credit accounts incur late fees each quarter. Evidence on the efficacy of regulations to improve behavior through enhanced disclosure of financial product attributes is mixed. We test a novel form of disclosure that provides borrowers with a …

Cause and effect: government policies and the financial crisisCause and effect: government policies and the financial crisis
www.tandfonline.com [PDF]
One in five consumer credit accounts incur late fees each quarter. Evidence on the efficacy of regulations to improve behavior through enhanced disclosure of financial product attributes is mixed. We test a novel form of disclosure that provides borrowers with a …

Anatomy of the credit scoreAnatomy of the credit score
www.sciencedirect.com [PDF]
One in five consumer credit accounts incur late fees each quarter. Evidence on the efficacy of regulations to improve behavior through enhanced disclosure of financial product attributes is mixed. We test a novel form of disclosure that provides borrowers with a …



Q&A About FICO Score


How many types of credit scores are there?

There are two types of credit scores, a consumer's "FICO" score and a lender's "EQ" or "Experian" score.

What does a FICO score measure?

A FICO score measures credit risk.

What is the FICO score?

The FICO score is one of the measures that are used by lenders to assess credit risk of an applicant, and then decide whether to extend loan to them or not.

Why do lenders use different scores when deciding whether to give someone a loan?

Different companies use different scoring models based on their own criteria for determining which loans they will approve and which they won't approve; some may even use more than one scoring model in order to help them make better decisions about who gets approved for what kinds of loans and at what interest rates; so even though all three major bureaus sell similar reports containing similar information about people's past borrowing experiences (and present ones too), each bureau uses its own proprietary formula(s) when calculating its own version(s) of your

Who created the FICO Score?

Fair Isaac Corporation created the Fico Score.

What does it mean if your credit report has no information in any category?

It means you have no history with this type of account. This could be good or bad depending on how you look at it. If you have never had any accounts like these before, it could be bad because you don't have any history with this type of account (i.e., no positive or negative payment history). On the other hand, if you've never had any accounts like these before, it could be good because you don't have any negative payment history for those accounts either!