How to Interpret a FICO Credit Score
FICO credit scores are created by the Fair Isaac Corporation to help lenders determine how creditworthy a prospective borrower is. The FICO credit score uses information found in your credit report and translates it into a number between 300 and 850, with higher numbers representing more creditworthy borrowers. Once you have determined where you fall, examine the five factors that effect your score: your payment history; the amount you owe and the amount of credit available to you; length of credit history; types of credit you use; and new credit applications. Though the formulas for calculating credit scores are not released, looking at your credit report can help you determine which components are hurting your score.
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Instructions
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Compare your score with the national average to determine where you rank. Only 13 percent of individuals have credit scores above 800 points, while 14 percent have credit scores below 600. Individuals with scores above 720 will usually qualify for the best interest rates.
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Examine your payment history on your credit report, which accounts for 30 percent of your score. If you have late payments, delinquent accounts or defaults on credit owed your score will be lower.
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Examine your use of credit, which accounts for 30 percent of your score. If you are using a large percentage of your available credit your credit score will be lower. To figure out what percentage of your credit you are using, divide your total credit owed by your total credit limits.
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Examine your length of credit. There is only so much you can do about how long you've had credit, but it accounts for 15 percent of your score so if you have a limited history that may explain why your score is lower.
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Examine your types of credit, which account for 10 percent of your score. If you only use credit cards, your score will be lower than if you used multiple types of accounts.
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Examine the inquiries on your credit report, which account for 10 percent of your score. If you have a number of applications in a short period of time, your score will go down because you are viewed as a greater credit risk. An exception to this is if you are applying for a home loan or a car loan. As long as multiple applications for these types of loans are received in a short period of time, the score will treat them as a single inquiry.
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Tips & Warnings
You are allowed one free credit report per year but you will have to pay a fee for the credit scores.
Always order your credit scores before applying for loans because there may be false information in your report that can bring down your score.
