Business
Decoding Your FICO Score
Discover what a FICO Score is, how it's calculated, and why this three-digit number plays a crucial role in your financial life and lending decisions.
What is it?
A FICO Score is a three-digit number, typically ranging from 300 to 850, created by the Fair Isaac Corporation to represent a person's creditworthiness. Lenders use it to quickly assess the risk of lending money to a consumer. The score is calculated using five main categories of information from your credit report: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%). It is one of the most widely used credit scoring models in lending decisions, from mortgages and auto loans to credit card applications.
Why is it trending?
Amid economic uncertainty and fluctuating interest rates, both consumers and lenders are paying closer attention to credit health. Financial literacy is on the rise, and people are actively seeking ways to improve their FICO Scores to secure better financial products. Lenders, in turn, are relying more heavily on scores to manage risk in a volatile market. This heightened awareness makes understanding and monitoring one's FICO Score a trending topic for anyone navigating their personal finances or planning a major purchase.
How does it affect people?
A FICO Score significantly impacts an individual's financial life. A higher score can unlock access to more favorable interest rates on mortgages, car loans, and credit cards, potentially saving thousands of dollars over the life of a loan. Conversely, a low score can lead to higher interest rates, loan denials, or stricter lending terms. Beyond loans, landlords, insurance companies, and even utility providers may use a version of your credit score to evaluate your application, influencing everything from security deposits to insurance premiums.