The FICO score, is basically a formula which is used to get a credit score, which in actuality, is a credit rating. The credit score is calculated by using a formula that has been devised by FICO (hence the name). The formula considers a consumer's payment history, current liabilities, the total length of the credit history, new borrowings and lastly, the different types of credits, that have been used. Though this figure is not the only factor considered by a lender to approve a certain loan or credit. This is due to the fact that the loan approval process and the interest rate, or APR, are determined with the help of this very score, and how high it is. Ergo, how costly your loan will be, is decided by the credit score. It follows that having a good credit score makes life easier.
Basics of a Good FICO Score
The definition of a good credit score, is indeed dynamic and has evolved with time. The following table depicts the interpretation of the credit score rating scale by FICO. The standard FICO score algorithm provides an output, that ranges from 500 to 850.
| Score Range | Rating |
| 760 to 850 | Excellent Rating |
| 700 to 759 | Great Rating |
| 660 to 699 | Good Rating |
| 620 to 659 | Fair Rating |
| 580 to 619 | Poor Rating |
| 500 to 579 | Very Poor Rating |
These ranges are not going to change, however, the scores that are prescribed for qualifications, are going to change drastically. This change is precautionary in nature that has been initiated after the sub-prime crisis that is still receding from the US economy. Thus, the condition for approval, or perquisite score, that is required to get a said loan has changed. In a scenario where bad debt has become common place, bringing down big financial corporations, this was bound to happen. Getting a loan has become harder, but not impossible. A good credit score provides you with cheaper credit lines.
Approval and a Good FICO Score
Now, as mentioned above, the credit score scale is not going to change, however, the requisite scores would differ. The common connotation that 660 to 699 is a 'good' credit score remains the same. However, as per the Federal Housing Administration (FHA), Freddie Mae and Fannie Mae guidelines, the minimum requisite credit score for getting a mortgage loan with a 3.5% down payment is 500. Since this is a government aided/supported loan, the requisite score is down to 500, however, banks such as Wells Fargo, and Bank of America, which are the largest banks for mortgage lending, have started demanding scores, higher than 620/640.
For larger loans, such as, mortgage loans, auto loans and real estate loans, the requisites have been made stricter. In the approval process, income, other liabilities, and total number of credit cards are being considered by lenders. This step has been initiated in order to avoid some of the common problems that were encountered, during the sub-prime crisis. This step avoids any kind of sub-prime lending. The risk is thus hedged, default probability is curbed and a substantial volume of return in assured. The smaller loans are however, quite easy to get and the credit score requirement is quite negligible, with most of the lenders demanding a good income and a rating of about 400. As a personal opinion I would recommend avoiding such loans, as the interest rate will prove to be quite expensive.
A good FICO score range starts at about 660, however, it is always better to aspire towards the 850 mark, which is the highest one. This will take quite a bit of time and the best way to reach the highest credit score possible is plan all income and expenditures properly.
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