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Which FICO Score Is Used for Installment Loans?

A credit score is a signal to lenders of how reliable and trustworthy someone is as a borrower. The rating considers a multitude of factors, including payment history, new credit, credit mix, credit utilization ratio, and length of credit history. These elements combine to make a credit score.

Where FICO Scores Come From

The company, Fair Isaac Corporation, provides lenders and creditors with FICO scores. The organization looks at credit reports, which come from the consumer credit reporting bureaus, and aggregates the data. A FICO score comes as a number ranging from 300 to 850, with higher numbers suggesting more reliable borrowers.

Fair Isaac Corporation works with the three major credit bureaus when it comes to creating scores. That includes TransUnion, Equifax, and Experian. Anyone can request a copy of their credit score from these bureaus once per year for free.

Because FICO uses an aggregation of credit scores, creditors and lenders universally use it to evaluate installment loan offers. A FICO score is a suggestive and detailed indicator of a borrower’s past and future financial strength. That is why lenders will use it before giving out anything from a mortgage or a credit card loan to a car loan.

FICO Scores Never Go Away

Note that the entire process of lending and borrowing is cyclical. Everything you are doing now, whether that is paying student loans or using a credit card, will impact your future finances. FICO scores are the way we currently measure that.

For instance, let’s say you have a credit card and spend $1,500 per month. If you make full and timely payments, you will start to build your credit score. The credit bureaus note this reliability and pass the information on to FICO.

Years later, you may need to take out a mortgage. Your FICO score will reflect that you were a reliable borrower in the past and, therefore, should be in the future. This process will repeat itself as you borrow and repay money while building up credit and FICO scores.

Writer

Vivaan Marsh is a professional writer, editor and an expert in personal finance. Her career as a professional writer stretch for over 11 years. One of her passions in life is to help everyday families with there financial problems, making their life a bit easier and explaining complicated topics in an easy way. Read more >

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