A Quick Guide to Understanding your FICO Score
When applying for a home loan at NHL Lending, our clients want to come prepared when handing in their application. There is a set criterion our clients have to meet to be considered for our loans and information needed before we can make a decision. We are more than happy to take the time to ensure our clients understand the loan they’re applying for and making the right financial decision for their future.
One of the terms many people are unfamiliar with is FICO Score and what it means for having access to their credit. FICO Scores are used in over 90% of U.S. lending decisions. Each year, lenders will access billions of these scores to help understand the credit risk of the borrower and to make informed lending decisions.
What is a FICO Score?
Here at NHL Lending, we enjoy helping our clients to understand how to make the best financial decision for their future. FICO Scores have also been called credit scores and are used to make the majority of lending decisions. A person’s FICO Score is basically used to help determine a borrower’s credit risk and to evaluate whether the borrower is qualified for a loan or credit.
Each person has three FICO Scores that consist of three digit numbers and is used to summarize a borrower’s credit risk. In short, determining how likely a person is going to be to pay off their credit depending on the agreed-upon obligations.
How are FICO Scores Determined?
Each of a person’s three FICO Scores will vary since each one is different and will be used to decide on the mortgage, loan, credit card, or another form of credit. The scores are based on the data collected on credit reports that come from the three major credit card bureaus that include Equifax, Experian, and the TransUnion.
FICO Scores are important for lenders to take into consideration when dealing with a new borrower since it will help them to determine the credit risk of their new client. This helps to make the lending process faster for both parties and makes it fair for potential borrowers.
What Does the Range of a FICO Score Mean?
Our Nationwide Home Loans has become known for helping our clients to make well-informed decisions when it comes to applying for a home loan that is right for their financial future. Understanding the range of a FICO score and how that is applied to the lending industry will go a long way to helping people to understand where they stand on the credit spectrum. FICO Scores will typically range from 300 to 850, while scores specific to an industry will be broader around the 250-900 range.
Higher FICO Scores demonstrate a potential borrower has a lower credit risk while those with lower scores will have a higher credit risk. “Good” scores will vary from lender to lender, but typically people can expect to pay lower interest rates if they have a score that is lower.
Why Are Different Scores Used?
Here at Nationwide Home Loans, we can expect FICO Scores to vary depending on the type of credit or loan people are applying for so to determine the risk assessment of it being paid back. Multiple FICO scores exist and industry-specific scores will vary as they’re updated when a potential borrower is applying for a loan. The FICO score used when applying for a credit card will usually be different from the one seen when applying for a home loan.
Potential borrowers who understand how FICO Scores work and how they’re used in the lending business can better help to determine whether they’re making a smart financial decision. This enables borrowers to make better financial decisions for their future and to figure out if they will end up paying a higher or lower interest rate depending on the type of FICO Score they have on their report.