The word FICO stands for an acronym of the company that invented the credit score popularly known as Fair Isaac Company. FICO credit score contributes to a greater extend in determining a borrower’s credit FICO score and lenders use the provided details in the credit report to assess the credit risk potential of a given borrower. FICO gives a summary of your loan repayment or default history.
Research has indicated that 80% of Canadians have no idea of what credit score is all about while only 47% understands how credit score is calculated. FICO method of credit score analysis is based on mathematical models that take into consideration borrowers’ credit bureau details so as to determine the credit risk. Such key details include; previous loan repayment history, your current debts and credit balance as well as the type of credit previously borrowed.
Borrower’s FICO score is given in a range of 300 to 850. The score is very crucial for any person who needs to borrow credit in their lifetime. Credit borrowing is very common to almost every individual and people often borrow loans for either mortgage, credit cards, or car loans.
Therefore, the lenders use FICO’s score so as to assess the borrower’s credit risk level. The lower the FICO score, the higher the risk to the lender which indicates that the borrower have not heard a good loan repayment history. In the case, they lend out their money to individuals with low credit score; they usually give out their cash at higher interest rates than normal.
On the other hand, if a borrower has high credit score, it means that the lenders will have low risk of loan repayment default. As such, lenders can have confidence with such borrowers and they are able to give them loans at better terms.
It is very important that every Canadian gets to know his/her credit score prior to any loan application. In Canada, TransUnion and Equifax are the two credit bureaus that one can get to know his/her credit score at a small fee.
Having a good credit score helps the borrowers’ access loans at very affordable terms.