FICO stands for Fair Isaac Corporation and it is a credit score model that uses your credit report to come up with a standardized number that reflects your ability to pay back debts that you owe as well as your ability to take on more debt. While there are a number of factors that go into the score, the FICO score has become the accepted way to easily determine credit worthiness.
The FICO credit score is determined by a number of factors but the two most important are payment history and the amount of revolving credit that you have available. These two factors make up 65% of your score and go a long way towards determining your credit worthiness. The payments history shows that you have the ability and the history of making payments in full and on time. Making sure that you pay your credit card bill on time is the single most important factor when you are looking to raise your credit score or keep it in good standing. The amount of revolving credit is the amount of credit you have available versus the amount that you currently have due. You want to make sure that you have more credit available than the amount that you owe to get a favorable credit score, therefore closing a credit line can adversely affect this number.
The other three determining factors for your FICO credit score are length of credit history, the types of credit you have, and recent credit inquiries. All of these total 35% of your score, so the payment history and revolving credit have significantly more leverage in determining your score. The length of credit history is how long you have had credit cards or credit lines and how long they have been in good standing. The types of credit you have is important in determining your score to make sure that you have a diverse selection of credit. Some examples may be revolving credit, consumer finance, or a mortgage. Recent credit inquiries is simply the amount of times you have applied for new credit cards or credit lines.
There are a number of factors that go into determining your FICO score and your score can be anywhere from 300 to 850, although most people fall within the 60th percentile and have a score of 650 and 799. While there are three reporting bureaus; Experian, Equifax, and TransUnion, your FICO score average will help determine your creditworthiness and will determine your interest rates for credit lines and mortgages. Using the FICO score is a great way to level the playing field and determine someone’s credit worthiness based on their ability to keep and pay off debt responsibly.