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What are FICO credit scores

Your credit score is often referred to as your “FICO” score, but it is actually calculated by whichever credit bureau you request your report from—Equifax, TransUnion, or Experian. The Fair Isaac Corporation (FICO) is simply the company that designed the software used by these three credit bureaus.

Importance of FICO scores

Your FICO score can be anywhere from 300 to 850. This information is used by banks and other lenders to determine what kind of financing and interest rates you are eligible to receive.

The higher your score, the lower the risk to the lender.

  • People with high credit scores—qualify for the lowest interest rates on mortgages, auto loans, and high-end credit cards.
  • People with very poor credit—have very few financing options or pay very high interest rates.

Having poor credit can even affect your employment status. More and more employers are relying on an applicant’s credit score when hiring because it may indicate a person’s level of responsibility.

FICO score calculation

FICO does not publish the specific formula for calculating your credit score, but it has published a list of factors that are considered and the “weights” that apply to each.

  • Note: A “weight” is a percentage out of 100 that reflects the importance of one factor in the calculation. For example, a factor with a weight of 65% is more important than a factor with a weight of 10%. The total of all weights must equal 100%.

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Credit score factors

Payment history (35%)

  • This is the most important factor in your credit rating
  • How often you make on-time payments on credit cards or loans.
  • If you miss payments or make late payments, it can hurt your FICO score

Amount owed (30%)

  • Total amount you owe across all accounts
  • Percentage of available credit being used
  • Types of accounts with balances
  • Number of open accounts with balances
  • How much is still owed on loans compared with the original loan amount

Length of credit history (15%)

  • The longer you have had open credit accounts, the longer you have been “creditworthy”
  • Keeping cards open and using them regularly without getting into debt helps keep your FICO score high

Credit mix (10%)

What type of credit you use and in what proportion, for example:

New credit (10%)

  • Looks at how much new credit you have
  • Opening several new credit cards in a short period of time, for example, is considered risky behavior, and your FICO score may suffer

Fun facts:

  • FICO was started by Bill Fair and Earl Isaac for $800. They believed that when used wisely data can help people make better business decisions.
  • The FICO credit scoring method is used in more than 80 countries.
  • Only 21% of people have a FICO score of 800 or above.




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