What is the FICO Credit Score?
Fair Isaac Corporation (FICO) credit score is a summary of your credit risk. This score is a three-digit number and lenders look your score to determine your creditworthiness. This score is based on the information at one of the credit reporting but It is perceived that, the higher your credit score, the lower the risk of lending to you. Your credit score can influence the rate and terms of your loan. If you have a low credit score, you are likely to access credits at high rates. This is because the lender thinks it is risky lending money to you. It has often been observed that people with bad credit do not make payments of time and this increases the risk of lending to them.
Credit scores commonly range between 300 to 850. Although every lender may have a different standard for what they consider a good credit score, there are general categories for credit scores. A credit score range from 300 to 629 is considered a bad credit score. From 630 to 689 is considered a good credit score, 690 to 719 is categorized under a good credit score, and 720 and above is usually considered an excellent credit score.
How Often Does My Credit Score Change?
Your credit score changes when the information on your credit changes. For Instance, if you are checking the report for TransUnion, changes in the score will depend on changes made to your report.
Factors That Make Up Your FICO Credit Score?
Although everything that appears on your credit report helps in calculating your FICO credit score, their percentages vary. The items have been put into categories and in the calculation process, some categories carry more weight. Let us check the categories and their importance in the calculation process.
- Payment History (35%)
Your payment history forms an important aspect of your credit score. This takes into account your credit cards. Mortgages, auto loans, and all other types of loans. It takes into account payments made and late or missed payments. With the late payments, it looks at the amount involves, and how late the payment is. This category also features foreclosures, bankruptcies, lawsuits, and liens.
- Amounts Owed (30%)
Another important category is the total amount you owe lenders. FICO adds all your outstanding balances and also compares it to your credit limit. That is, they find the credit utilization ratio by finding a ratio of the amount owed to your credit limit. The lower the credit utilization ratio, the better.
- Length of Credit History (15%)
People who want to get loans at good rates are advised to build their credit. The FICO score considers the length of your credit history in calculating your score. Usually, all loan and credit card payments are recorded as part of your credit history. If you have a long credit history that shows that you repay your loan on time, your creditworthiness is higher. Hence, in calculating the FICO score, people with a long history of loan repayments get better scores in this section.
- New Credit (10%)
This category focuses on all the new loans and credit cards you have taken recently. This is important because more new credit could indicate that you are struggling with your finances and you are not ready for another credit. The lower the number, the better. It also considers all new inquiries. If several hard inquiries hit your account, it will affect your credit. However, if these inquiries are done within 45 days, they will be counted as one inquiry provided that they are all for the same loan type. Hence, with inquiries, the lesser the number the better it is for your credit score.
- Credit Mix (10%)
The credit mix is all about the various credit accounts you have opened. The credit cards, auto loans, retailer accounts, home mortgages, and installment loans form part of the credit mix. People who do not have a long credit history can benefit from the credit mix. Although you may not have all the credit accounts, the more the different accounts the better.
How Do I Check my Credit Score
You will find your credit score on your credit report. You can visit AnnualCreditReport.com to access free copies of your credit report for all three credit bureaus: TransUnion, Experian, and Equifax. Since you are allowed to access one free report for each annual, you can decide to take them every quarter. For instance, if you take an Experian report this quarter, you will take a TransUnion report the next quarter. When you access your report, take the opportunity to review the report. Make sure that your report has the correct information all the time. Since inaccurate information can affect your score.
If you realize that your score is bad, you should make an attempt to improve it. You can improve it by disputing errors, making payments on time, and avoid making several hard inquiries. You can also let someone of good financial standing add you as an authorized user to their credit cards to increase your credit limit. You can also hire a professional credit repair company to help you to improve your credit.