What Is a FICO Score Used For?

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A FICO score is used interchangeably with the term "credit score," and it is calculated by placing different weights that add up to 100 percent in different categories, including payment history. Find out how FICO scores are used by banks to determine if they want to give somebody credit with information from an independent CPA in this free video on FICO scores.

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Video Transcript

Hi, I'm Miranda Chook, a CPA. So you want to know what a FICO Score is? Well, FICO and credit score are use interchangeably, but FICO itself actually stands for the Fair Isaac Corporation Scoring modem and it's specific to that company and how they calculate your credit score. Now, credit scores are also calculated by the three major credit bureaus; Experian, Equifax and Trans Union. So your credit score may actually be different, calculated differently by each company because they have access to different credit information. Now in general though, how the score itself is calculated is that different weights that add up to a hundred percent are assign to different categories. So in general though, each of those companies calculate your credit score by placing different weights that add up to a hundred percent on different categories. Those categories include your payment history; do you have recent or have you applied for new credit; how much of your credit do you use in relation to the total available credit; things like that. Now the reason you have a credit score and you want to know what it is is because it is frequently use by banks and financial institutions in order to decide whether or not to grant you credit and in what rates. So of course if you apply for a mortgage, banks frequently will look up your credit score and decide whether or not to loan you money and how much in points and fees to charge you as well. And one other thing is that, sometimes employers will do, get a credit report on you. Again, it's just another piece of information for them to kind of evaluate your employment eligibility.

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