If you are thinking of applying for a loan, it will be a good idea to first check your FICA score. This will give you an indication whether you’ll get a credit and on what terms.
Your FICA score is a 3-digit numerical index which represents an estimate of your financial credit worthiness.
It is based on a subset of the information in your credit report, typically from the three major American credit bureaus: Equifax, Experian, and TransUnion. Though the scoring system used by all three credit bureaus are different but all point to one conclusion and that is whether or not you have good or bad credit.
Creditors or lenders, such as banks and credit card companies, primarily use FICA credit scores to determine credit limits and interest rates every time when you apply for new credit card, mortgage, auto loan, personal credit line or any other credit issues by the bank.
Is 700 a Good Credit Score?
FICA score ranges between 300 to 850. The higher is your credit score is, the lower the risk is to the lenders and the easier you’ll obtain a loan, so to speak. A low score, such as 500, could result in much higher interest rates or having your application rejected outright. Conversely, those with a credit score of 760 – 850 would get the most favorable interest rates.
If your credit score is on the low side, loans can be tough to obtain and can cost you thousands of dollars more than they would if you had a decent score. Needless to say, getting home loans (mortgages) with a 500 credit score is almost impossible nowadays.
According to Providian Financial executive J. Christopher Lewis, consumers could save $16 billion just on credit card finance charges if they raised their average score by 30 points.
In general, your FICA credit score represents the likelihood that you’ll pay your debts or default on your loan. A low FICA score means banks and other financial institutions may deny credit, charge higher interest rates, demand more collateral, or require extensive income and asset verification.
As such, every credit and lending decisions are based on an individual’s FICA credit score. It’s one of the most important factors to evaluate how much risk you are as a borrower.
What’s In FICA Score?
A credit score can be broken down into 5 components, some carry more weight than the others.
Since the bulk of your credit score comes from your payment history and the amount you owe, it’s important to keep a healthy balance and ensure that you always make your payment on time.
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