When applying for a loan, most people hope to get the lowest interest rate possible. Some lenders look at your FICO Score to determine what rate they’ll offer you, so it could help to know what scores give you an advantage. Let’s explore what FICO Scores could get you the lowest interest rate.
First off, what is a FICO Score?
The FICO Score is a number that predicts how likely you are to pay back your bills on time.1 It’s calculated from the data in your credit reports from the three main credit bureaus: Equifax, Experian and TransUnion.2 Scores range from 300-850 and are built using information such as payment history, use of available credit and other factors.3
Who uses it to determine interest rates?
Thousands of lenders use it every day.4 In fact, 90% of all lending decisions in the U.S. use the FICO Score, according to Anthony Sprauve, senior consumer credit specialist at FICO.
What FICO Score can get you the lowest rate?
The higher your score, the lower the risk for the lender and better terms for you.5 According to Sprauve, borrowers typically begin qualifying for prime rates with FICO scores above 720.
Still, each lender evaluates score ranges differently and determines its own cutoff rates for lending. That means that some lenders may require a higher score to get the best rates.
To figure out your score, go to myFICO.com and try their free credit score estimator.
How can I improve my FICO Score?
Boosting your score may get you lower rates, but it can take dedication and discipline.
"It's important to note that repairing bad credit is a bit like losing weight: it takes time and there is no quick way to fix a credit score," says Sprauve. He also says to beware of advice that claims to improve your credit score fast, as quick-fix efforts are the most likely to backfire. Instead, the best advice to manage it responsibly over time.
Here are some tips that Sprauve provided to help improve your credit score.
• Pay your bills on time every time
• Be smart when applying for new credit
• Keep your revolving credit debt low, typically less than 30% of available credit
The higher, the better
Higher FICO Scores can make a big difference in what you pay for a loan.6 To learn more, check out the credit education articles and videos at MyFICO.com.
1. MyFICO. “Credit Education.” MyFICO.com. https://www.myfico.com/credit-education (accessed September 19, 2018).
2. MyFICO. “Credit Education.” MyFICO.com.
Interview with Anthony Sprauve of FICO
*This article has been updated from its original posting on March 10, 2015.
Mitch Strohm contributed to this article.