What Your Fico Score Means?

Credit score (Fico Score) is a system for assessing the creditworthiness of a financial services’ consumer. It affects any application that is submitted for various types of loans: from loans for the purchase of goods, real estate to credit cards.

How is the borrower identified?

In the United States, the Social Security Number (SSN) is used instead of voter list data. It is a nine-digit code assigned to US citizens and residents. SSN is a unique identifier that is often required for employment, banks to open accounts and issue loans, rent apartments, and provide medical services.

Credit bureaus in the USA

The main credit bureaus in the United States are Experian, Equifax and TransUnion. Despite the fact that these are the same companies, they do not share information about the borrower’s credit history with each other.

Credit bureaus collect information about credit history and credit behavior, as well as personal information about the borrower. However, this is where the similarities end. The way bureaus interact with lenders and provide them with information is different in the United States and in other countries. In particular, the biggest difference concerns credit scoring – how it is calculated and used.

How the credit rating works in the USA?

Several types of credit scoring are used in the United States (including various versions of the FICO and VantageScore), with all major systems using a scale ranging from 300 to 850 points. The scoring of one of the credit bureaus is usually used to make decisions about granting a loan. The most popular model is FICO – used by about 90% of American lenders.

Every year, lenders make about a billion loan decisions based on FICO scoring. FICO score means whether you will be issued a loan or not.

FICO products are several types of settlement systems, for example, for the car market or mortgages. There is also a general, universal scoring from FICO. Which one to choose is decided by the credit organization to which its potential client applies, and the number of calculated points as a result will differ slightly. The credit rating from FICO is calculated in the range from 300 to 900 points, where 300 is the lowest and 900 is the highest.

The scale looks like this: from 300 to 579 points – this is a very bad rating: lenders are likely to refuse to provide a loan or the interest rate on it will be very high;

• 580–669 – not a high score, but creditors will be more supportive: most likely there will be no refusals;
• 670-739 – good credit rating: the borrower can count on the standard interest rate;
• 740-799 – very good credit score: most likely, bonuses and favorable terms will be offered;
• 800–855 – excellent credit rating.

Scoring is mainly calculated based on five factors:

• payment history;
• debt;
• new loan applications and records in credit history about issued loans and applications (hard inquiries);
• credit history length.

Types of credits used

Also, credit bureaus in the United States may not take into account information about the use of bonded lending products – loans using an extremely high interest rate.