This post will help you learn more about credit scores. So, what does FICO stand for anyway? Read this brief review to learn the answer and why it may be important to you for personal finance and credit decisions.
A FICO score is a measure of a person’s creditworthiness. It attempts to quantify a borrower’s ability to pay back a loan or other credit received.
As you can imagine, the ratings brackets will range from bad credit worthiness to excellent creditworthiness.
What Does FICO Stand For?
FICO stands for Fair, Isaac and Company. This is a data analytics company originally founded in 1956 by Bill Fair and Earl Isaac. The analytics company concentrated on credit ratings and developed a measure lenders could use when determining a customer’s credit risk.
The FICO score, (by Fair, Isaac and Company), was developed as a way to streamline the lending decision process by ranking a customer’s creditworthiness based on a variety of financial factors. The score helps lenders to evaluate risk of lending to consumers within each of the score brackets.
The FICO score was quickly adopted by banks and businesses as a way to better evaluate to whom they would lend money or credit.
Lenders wanted and needed a consistent way to determine if borrowers would be good credit risks or bad credit risks.
Is FICO Score Important for Credit and Lending Decisions?
Certainly, because the FICO credit scores brought a consistent process to lending decisions. Today, FICO credit scores are available through all of the major credit reporting bureaus and agencies.
Lenders will separate borrower’s into creditworthiness ranges or brackets. The bracket numbers will vary slightly, but the break down is generally the same. The scores range from 300 to 850. See this breakdown of the ratings brackets. Which bracket do you fall into?
- Excellent Credit
- Good Credit
- Fair Credit
- Poor Credit
- Bad Credit
Likewise, banks and financial institutions develop personal financial products such as home mortgages, personal loans, credit cards, retail store cards, rewards cards, with each of these brackets in mind.
Hopefully this definition overview and guide was helpful.