FICO score is an important number, as it can determine whether or not your customer qualifies for certain credit cards or gets favorable rates on a mortgage or car loan. However, research shows that a significant amount of people either don’t understand how FICO credit scoring works or are overconfident about their knowledge of it.
Below is some great info:
What is a FICO score and who uses it?
FICO was created by an analytics software company to help lenders determine the credit risk of a consumer. Consumers are ranked based on how well they manage their credit and loans, which produces a score that intends to predict the likelihood of you paying a lender back.
FICO scores are still the most widely used in the US, especially by the auto, banking, and insurance industries.
How does FICO calculate the score?
FICO’s algorithm receives information from the credit bureau report and then compares the consumer to other scored consumers, which produces the score. Certain factors are more influential than others, but all are taken into account.
- Payment history (35%): shows whether they’ve made payments consistently on time.
- Amounts owed (30%): multiple credit cards aren’t a credit risk, but when you use a significant amount of your available credit, it begins to negatively affect the score.
- Credit history (15%): FICO looks at the age of the oldest and youngest accounts, the average age of all accounts, and also how often the accounts are used.
- Credit mix (10%): shows the types of credit the customer has, for example installment loans, credit cards, and mortgage. Having more than one type of credit is positive.
- New credit: (10%): includes the number of new credit accounts and loans they have opened or tried to open.
What are the FICO score levels?
Poor 300-580 Fair 580-669 Good 670-739 Very Good 740-799 Excellent 800-850
What does this mean for you, the contractor?
Never judge a book by its cover. Run the customer’s credit application through a lender who will use FICO score and credit and application factors to come to a credit decision. Foundation Finance uses FICO score and information on the application to determine the best possible approval for dealers. We know that people are human and things happen so we don’t strictly base our decisions on FICO score which many of the larger lenders do.
Read more here.