Understanding your credit score is crucial for financial health, whether you're applying for a mortgage, car loan or credit card. Let’s break down what a FICO® score is, how it differs from a credit score and how you can improve yours.
What is a FICO score and how is it different from a credit score?
A FICO score is a type of credit score that lenders use to assess a borrower’s creditworthiness when applying for a loan or credit card. According to the Consumer Financial Protection Bureau, FICO introduced the first credit scoring system in the 1950s. Since then, different versions of the FICO score and various other scoring models have been adopted for use by credit card issuers, auto lenders, mortgage companies, and other types of lenders.
Why are there different FICO Scores?
There are multiple FICO score versions to adapt to changes in consumer behavior and lender needs. Different lenders, such as mortgage providers, credit card companies, and auto lenders, assess different factors in your credit report. That’s why FICO created industry-specific scores to help lenders make more accurate decisions.
The primary factors that affect credit scores include:
- Payment history--Including late payments and collection items
- Balances, available credit, and the percentage of existing credit lines
- Negative public records--Bankruptcy, judgments, and liens
- Length of the credit history and the mix of credit types
- Taking on new debt--New accounts or inquiries
How do I improve my FICO score?
- Reduce the amount of debt you owe
- Diversify your credit accounts over time
- Make payments on time
- Regularly check your credit report for errors
By understanding your FICO score, you can strengthen your financial standing. Staying informed about your credit health is one of the best ways to set yourself up for long-term financial success.
Perks of Using a Debit Card
Paying Back Student Loans
