If you are buying a home or making a big purchase such as a car, boat, RV, vacation home, etc., you will need to know everything you can about your FICO score? If you are starting out after graduating from school and settling into the workforce and living in an apartment, it is a good idea to educate yourself about how to maintain an excellent credit score and FICO score. Knowing this information and keeping a high FICO score will set you up for a chance at financial success.
What is a FICO Score?
The FICO credit score was created by The Fair Isaac Corp. as a way to assess credit risk for lenders, landlords, etc. The FICO credit score looks at your credit history to determine if it’s wise for a company to extend credit to you. A high score indicates a strong credit history, meaning lenders and insurers are more likely to offer credit.
The FICO score is comprised of five main components derived from your credit history:
- Payment history: 35 percent
- Amount of debt: 30 percent
- Length of credit history: 15 percent
- New credit: 10 percent
- Credit mix: 10 percent
Your FICO score is not the only credit score available. The big three credit bureaus compile information about your borrowing habits and use this information to create detailed credit reports. Your FICO score is used by lenders to determine your dependability as a borrower.
What is a good FICO Score?
FICO scores range from 300 to 850.
- 800+ is exceptional
- 740 to 799 is very good.
- 670 to 739 is good
- 580 to 669 is below average
- 579 or less is poor
What are the three major credit bureaus?
The three major credit bureaus that report your annual credit report are:
- TransUnion
- Equifax
- Experian
These credit bureaus offer one free credit report a year for you to review. The banks typically provide your FICO score for free.
Payment history
Paying a bill or credit accounts on time is the most critical factor in determining your FICO score. It shows that you are less of a credit risk.
Finance rates
The higher your credit score is the better interest rate you will receive from a lender.
Ways to improve your FICO score
If you have a lower score than you would like or you are getting turned down by lenders due to your FICO score, you’ll want to do these things to improve your FICO:
- Review your credit report to see what payments were late or what negative reporting you have received if any.
- Pay ALL bills on time. Your bank has a service called Bill Pay to schedule payments so you will not be late.
- Paying your bills even a few days late has an impact on your score.
- Keep your credit card balances low.
- Pay off debts rather than moving them. Owing an amount of money on a single account is often better than owing the same amount across several accounts.
- Wait to open new credit accounts until you absolutely need them. Opening several accounts in a short period can lower your credit score.
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