All You Need to Know About the FICO Score

The FICO score is a three-digit number that reflects an individual’s creditworthiness, or the likelihood of repaying borrowed money on time. This score is calculated using the information in your credit report, including your credit history, outstanding debts, payment patterns, and the types of credit you hold. Developed by Fair Isaac Corporation (FICO), this scoring model is widely used by financial institutions globally, although in India, the TransUnion CIBIL score is more commonly adopted.

Similar to a CIBIL score, a higher FICO score signals lower risk to lenders, while a lower score indicates a riskier borrower. Lending institutions look at these scores to assess your eligibility for financial products such as personal loans, and even rental agreements. 

In this article, we’ll cover what the FICO score is, the factors that affect it, and how to improve it.

Factors Impacting Your FICO Score

Unlike the CIBIL score, which ranges from 300 to 900, the FICO credit score ranges from 300 to 850. Scores of 750 and above are typically considered good and can qualify you for personal loans with favourable interest rates. However, this can vary depending on the lender and the type of loan you're applying for.

Below are the key factors that influence FICO score calculation:

• Payment History: Timely payments on bills, credit card dues, and EMIs positively impact your score, while late payments or defaults can significantly lower it.
• Credit Utilisation Ratio: This refers to the percentage of your available credit that you are using. The ratio is typically advised to be below 30% to maintain a positive score.
• Length of Credit History: A longer credit history, particularly with responsible management, tends to improve your score.
• Types of Credit Used: A diverse mix of credit types (e.g., credit cards, personal loans, auto loans) can positively affect your score by showing that you can manage different kinds of credit responsibly.
• New Credit: Frequent applications for credit lead to hard inquiries, which can slightly reduce your score.

*Since FICO scores are less common than CIBIL scores, it's important to confirm with your lender whether they consider FICO scores before applying. For more information on CIBIL score requirements at SMFG India Credit, feel free to reach out to us.

How to Improve Your FICO Score

Whether you want to improve your FICO score or CIBIL score, the general principles remain the same, along with the necessity for consistent efforts. Here are some tips to help boost your score:

• Pay Bills on Time: Timely payments are critical for improving your score. Set up reminders or automatic payments to ensure you never miss a due date.
• Reduce Credit Utilisation: Pay down existing credit card balances to lower your credit utilisation ratio. 
• Limit New Credit Applications: Avoid opening too many new credit accounts, as each application results in a hard inquiry, which can lower your score.
• Check Your Credit Report for Errors: Regularly review your credit report for any errors, such as incorrect payments or accounts that aren’t yours. Disputing inaccuracies can help improve your score.

Conclusion

While FICO scores are used in India, they are not as widely adopted as CIBIL scores. It’s important to check with your lending institution to determine if they accept FICO scores as an eligibility parameter. Whether it's the FICO score or the CIBIL score, maintaining a strong credit score is crucial for securing loan approvals with favourable terms.

At SMFG India Credit, personal loan applicants are required to have a CIBIL score of at least 700, along with a strong credit history. Check out our eligibility requirements, estimate your EMIs, and apply online for loans of up to INR 10 Lakhs*. For more information, contact us or visit your nearest SMFG India Credit branch.