What is the difference between a FICO Score and a Credit Score?
Could you imagine that your interest rate on your home mortgage was based on what type of job you have, or the amount of your loan was based on where you lived, or the amount of time you have to pay off your loan is determined by your gender?
It’s wild to think that credit scores would be based on such information; but believe it or not, up until 1989, this is how lenders would determine your creditworthiness.
With the many inconsistencies this subjective method of lending created, lenders had to come up with a more objective rating system that would assist them in fairly determining creditworthiness for people.
The Fair Isaac Corporation (FICO) Scores use algorithms to determine creditworthiness based on five different pieces of information that is contained in a credit report, according to My FICO.
These five categories are:
- Payment History (35%)
- Amounts Owed (30%)
- New Credit (10%)
- Length of Credit History (15%)
- Credit Mix (10%)
Today, nearly 90% of all lenders use the FICO score to determine eligibility in a more efficient and consistent way to the consumer.
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