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What is a FICO Score
August 17th, 2009 by Caton HansonA FICO score is one essential part have knowing how to manage your finances. The number is determined using a very difficult and confusing system used by lenders and underwriters. It is not necessary to know everything about this system but knowing a thing or two can prove to be a large benefit to you in keeping up your score. The more your know about the system, the more you can use it to your advantage and this is really the way of keeping your credit score afloat. It is key.
Before anything, you need to know the basics of the FICO system. The first place to start is understanding the FICO ladder. A FICO score is somewhere between 300 and 850. Didn’t know that? You should. If you didn’t, that’s okay, because after today, you will know a lot more than most people do about FICO scores. The best spot to be is somewhere between 720 and 850. This is wonderful. Again, if you’re not in this range, it’s okay, anything above 675 is still good. If it’s below that, then… you can worry a little. But just a little because there are still ways to bring it up. The lowest score is 300 and if this looks like yours then you are in trouble, you should worry, and I cannot help you.
A FICO score is comprised of many different parts. To determine your FICO score a bureau looks 35% at your paymnet history, meaning how many payments are delinquent or late. If a payment is past thirty days late, it is reported to a bureau and they will then lower you FICO score. Another 30% of you FICO score depends on you credit/debt ratio. Not know what this means? That’s ok too. Let’s say you have a credit card with 10,000 dollar limits. If you have used 4,000 of that, your debt-credit ratio is 40/60. This is ideal.
Fifteen percent of your FICO score is dependent upon your credit history. This isn’t just how long you have had credit, although that’s part of it. Let’s say you have a car loan for $100,000. Very nice car, I know. You have paid off 60,000 over the last 4 years. Your debt/credit ratio is 40/60 which is the ideal range.
There are also a couple of unique things that can affect you credit score such as how much money you owe to a court judgement or money you owe on a tax lien. These have much larger penalties, as does any kind of bankruptcy as you could imagine. The number of accounts you have open also affects your score even though it may improve the debt/credit ratio. Each time you make an inquiry on your credit, it also affects your score. Some pulls hurt more than other though. For example, if you are checking your personal credit, this is considered a soft pull and won’t really affect your score.
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