What Is Fico Score

FICO score is a number from 300-850 that represents the calculated risk of lending you money. Fico credit score is the result of a complex mathematical formula that takes into account numerous factors in your credit report.

There are many different credit scores, but FICO is the leading score, with over 90% of creditors and lenders using it for making lending decisions.

Your FICO score is by all means the single most important number in your financial life, because it determines your financial future. Not only it determines whether or not you can obtain credit (a mortgage, car loan, credit card etc), it also determines the terms and interest rate you will be offered.

A bad credit score can cost you thousands of dollars in excess payments and higher interest rates, as demonstrated in this table.

In addition, credit checks are performed by potential employers to determine whether you’re financially responsible, insurance companies and landlords that check potential renters.

• Payment History accounts for 35% of your score. Are you paying your bills on time, or have you ever been late? Have you ever been contacted by a collection agency? Is there a lien or judgment against you? Have you ever declared bankruptcy?
• Credit Utilization accounts for 30% of your score. The more money you owe, the lower your score.
• Credit File Age accounts for 15% of your score. The longer your credit history is, the higher your scores will be.
• Credit Diversity accounts for 10% of your score. The more types of credit you use (mortgage, car loan, school loan, credit cards etc), the higher your score becomes.
• New Credit (credit inquiries) accounts for 10% of your score. The more you search for new credit, the lower your score will be.

For a deeper look into these factors and how do they affect your FICO score please see FICO Score Formula.

Who Makes Fico Scores?
There are 3 major credit bureaus – Experian, Equifax & TransUnion. These credit reporting agencies collect consumer information in personal files, called Credit Reports. The information in these credit reports is used to generate personal FICO scores, which are sold to potential lenders. Whenever you apply for credit, the potential lenders pulls your credit reports and scores from one, two or all three bureaus and review them as part of the lending decision.

What is a Good FICO Score?
Generally speaking, a FICO score of 680 and higher is considered a good score. But things are a little more complicated, as explained in What Are Good Credit-scores.

Where Can I Get My FICO Score?
Under the Fair Credit Reporting Act (FCRA) which regulates the credit reports and scores industry, you have a right to receive Free Annual Credit Report from all the 3 major credit bureaus. This however does NOT include your FICO score. FICO scores are sold to consumers by myFICO.com. For more information please see Free Annual Credit Score.

Suggested Reading
Understanding Fico Scores
FICO Score Formula
How Things Affect Your Credit Score