How to Understand a FICO Score

FICO (Fair, Isaac and Company), is one method in which a consumer's credit is evaluated based upon credit history, income versus expenditures and any late payment or collections activities. A FICO score can range from 350 to 850, with the upper range representing those consumers who are the most acceptable credit risks and the lower range representing consumers who have experienced problems in maintaining good credit. A FICO score can be used to qualify consumers for a home mortgage, car loan, credit cards and to work in certain types of employment.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• FICO score obtained from a reliable source

1. Check to see if your FICO score is above or below 700. If it is below, your credit history probably suffered a few glitches, like delinquent accounts or debts placed in collections.
   
2. Investigate any score reasons that accompany your FICO score. If your credit score is low, these reasons may provide a simplistic explanation. Some reasons might be delinquency, amount owed on accounts, proportion of balance to limit or collection actions on records.
3. Evaluate your payment history because 35% of the consideration for your FICO score is base upon your history of late or on-time payments. Any delinquent accounts fall into this evaluation, as well as how long the accounts remained delinquent, whether the accounts are still delinquent or how the delinquency has been resolved.
4. Assess your debt load. Approximately 30% of how your FICO score is calculated is based upon the amount of money you owe versus your credit limits.
5. At least 15% based upon how many years you have had credit in your own name and the age of your accounts.
6. Examine the types of debt you carry, as this makes up 10% of your FICO score evaluation. Installment accounts are typically car and school loans and if kept healthy, are considered good debt. Mortgage accounts are evaluated in much the same way as intallment accounts. Revolving credit, typically your charge card accounts, can be considered bad debts if you have too many open accounts or carry too high a debt load versus credit available.
7. Minimize your attempts to attain new credit, remembering that 10% is based upon new credit applications and inquiries.

Tips & Warnings

• The percentages utilized above are estimates, not definites. The exact way in which a FICO score is calculated is a trade secret, which is why different credit agencies can calculate different credit scores based on the same information for the same people.
• When applying for loans or mortgages, bear in mind that while your FICO score is evaluated, so is your employment history, current income and amount of money you are seeking to borrow.
• Obtain a copy of your credit report and verify for accuracy.
• Protect your future credit scores by ensuring on-time payments and don't allow your debt to equal more than 30% of your credit availability.
• Monitor your credit carefully to ensure that all aspects are reported accurately and fairly. Guard against fraud by staying informed of what lenders and employers can find out about you through your FICO score.