FICO scores, also called credit scores, help a lender determine whether they should take the risk of lending to a particular borrower. The higher the FICO score, the more likely a borrower will be approved for a loan or credit. The score ranges from 300 to 850, with scores over 650 considered very high and favorable.
FICO Definition
Created by the Fair Isaac Corporation, the FICO score forms the numeric portion of a credit report. The FICO model uses complex mathematics to weigh the risk of lending to a particular consumer. The score examines a consumer's payment history, types of credit, credit history length, and the amount of new credit on file.
Subprime Loans and FICO
Subprime loans provided the fuel to the credit crisis. Subprime loans were created for those who couldn't qualify for a better prime loan. The lender pays additional fees for the risk involved in such an arrangement. One qualification of a subprime loan is a lender FICO score of 650 or lower.
FICO Subprime Predictions
According to an article in The Regional Economist, the FICO scores of borrowers did not help predict the large number of subprime loan delinquencies that created the credit crisis. Higher FICO scores prior to the loans did not equal a lower default rate in that group.
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