How to Understand Your FICO Credit Score

Credit scoring was created in the 1950's by Fair Isaac & Co.,(FICO)for short. It's a way to determine a consumers likelihood to pay their bills. The credit scoring system works by calculating your credit history to determine your future credit worthiness. The systems uses mathematical models to analyze and study millions of people's credit patterns and usages and compares it against your individual credit file. There are several factors that contribute to these analysis's, although the credit bureaus haven't fully disclosed exactly how these scores are computed.

Difficulty: Moderate

Instructions

1. 
   Credit History

   LENGTH OF CREDIT HISTORY - 15% of a FICO score - This is the time that your credit accounts were opened and maintained. The longer your accounts have been opened the more it will have a positive effect on your credit score.

2. 
   Credit Used

   TYPES OF CREDIT USED - 10% of a FICO score - This includes the different types of accounts that you have. Such as credit card, installment loans, mortgage, retail accounts, etc. Having too many accounts may have a negative effect on your credit score. A delicate balance should be maintained.

3. 
   Credit Debt

   AMOUNTS OWED - 30% of a FICO score - This includes the balances on any loans and the balances on your credit cards. Your credit card balances should not be more than 30% of the total limit. Balancing multiply accounts, without default is great as long as your debt to income ration is inline. Your total debt should not consume more than 60% of your income, (this includes 33% allowed for a mortgage).

4. 
   Payment History

   PAYMENT HISTORY - 35% of a FICO score - This includes, the number of accounts that are paid as agreed, number of past due accounts and time since they went past due, collection accounts, public records, and all other types of payment history.

5. 
   Recent Credit

   NEW CREDIT - 10% of a FICO score - Recently opened accounts and recent inquiries.

6. 
   Credit Scale

   The FICO score scale is 300 to 850. Every range of the score determines your risk factor. Each score is like a grade.
   EXCELLENT CREDIT 750 - 850,
   GOOD CREDIT 660 - 749,
   FAIR CREDIT 620 - 659,
   POOR CREDIT 350 - 619

7. 
   How do you compare?

   All of the above factors contribute to determining your FICO score. One is not more important than the other. Your credit information is always changing, therefor it's important to monitor your credit file and strive for excellence in each area.

Tips & Warnings

• Don't apply for a lot of credit in a short period of time.
• Know your credit score.
• Pay your bills on time.
• Don't go over your credit card limits.

[jennen]

on 1/7/2009 "although the credit bureaus haven't fully disclosed exactly how these scores are computed." As consumers we have the right to know how else can they call it fair... 5**

[LouisJeffries]

on 1/2/2009 Very good tips to increase your credit score.

[dasbootjoe]

on 12/28/2008 Great article! Thanks for sharing*****

[Tweety33]

on 12/28/2008 WONDERFUL! WONDERFUL ARTICLE! GREAT INFO AND PICS YOU HAVE BROKEN IT DOWN VERY NICELY. THANXS 5*-RECOMMENDATION

[ScarlettOHairy]

on 12/22/2008 Really good info broken down nicely. Well written. Thanks!