Understanding FICO Scores and The Role They Play in Your Pursuit of Credit

If someone sat down with you and told you what your current FICO score was, would you know what that meant and how important it was? If you ever wondered about how this particular set of numbers greatly impacts virtually every area of your life, this post was written for you.

Let's take a look at what FICO scores are, the importance of them as well as what a 'good' FICO score looks like.

What is a FICO Score?

Thirty years ago, the Fair Isaac Corporation (FICO) debuted what would later become known as the FICO score. This is a three-digit representation of your creditworthiness. Banks and other financial institutions utilize your FICO score to determine how likely you are to repay the money you are borrowing. Your FICO score is more often than not the deciding factor in obtaining any type of loan or even a request for utility services.

Your FICO score will also be the deciding factor in how much you can borrow, how long you have to repay your loan, and what the loan will cost you in terms of your interest rate. The higher your score, the better terms you will get on your loan or other requests for credit.

Look at it this way. A good or even excellent FICO score is very much like a stellar cover letter and resume, but instead of landing that dream job, you are being loaned money for that dream car, home, or business.

What Does a 'Good' FICO Score Look Like?

FICO scores are, as mentioned, a three-digit number that can be the difference between a 'yes', 'no', and several ways of looking at 'maybe' when trying to secure personal funding for automobiles, homes, or starting a small business.

Here is an example of the different number groups and how those numbers determine your likelihood of obtaining a loan from banks and other financial institutions.

• 0-580 anything in this range is considered 'poor', well below the national average, and presents a high risk to lending institutions.
• 580-669 'FAIR' this is also below the national average, however, you could get a loan with a very high-interest rate.
• 670-730 'GOOD' this represents the national average in which most lenders would be prone to extending credit to you.
• 740-799 'VERY GOOD' well above the national average and demonstrates your ability to successfully pay your debt on time and in full.
• 800 and over 'EXCELLENT' if you fall in this range, you are clearly head and shoulders above the rest and obtain any funding is at your disposal

The way FICO scores are determined has been a constant chain of evolution over the past 30 years and will continue to do so as needs and interest rates are constantly changing.

So, a good FICO score currently sits at 670 and beyond. Many lenders feel that this number makes you an ideal customer with which they want to do business.

Why a FICO Score is Important and Tips on Keeping FICO Scores Healthy

At some point in all our lives, we will be asking a bank or other lender to fund something that matters to us. Keeping your FICO score in that 'good', 'very good' and 'excellent' range will determine how likely you are to receive those funds. Remember, your FICO score is that resume that makes you the most likely candidate for your loan!

Here are some valuable tips on maintaining a healthy FICO score.

• Always pay your bills on-time
• Keep your debt to income ratio as low as possible
• Pay your loan amounts in full before the maturity date whenever possible
• Be thrifty and budget for those 'unexpected' bumps in your credit highway
• Be certain that your credit history is being promptly reported and is correct
  
  

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If you live in the greater Duluth, Minnesota area, and you are considering a mortgage loan or would like to discuss your current FICO scores please feel free to contact us here at Lend Smart Mortgage.