Your Credit Score
What is a FICO score?
A FICO score (an acronym for Fair Isaac Corporation, the company that developed the score) is a number based on a statistical analysis of your credit report. This number is used to represent your overall credit health and the likeliness that you will pay back your debts. A higher score means you have better credit and will be get the best interest rates, while lower scores mean you have poor credit and it will be difficult to get a loan.
There are many things that effect your credit score, but here are the main things that effect your score:
- 35% — Paying on time (any payments more than 30 days past due)
- 30% — Amount of debt (expressed as ration of revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
- 15% — Length of credit history (how long you've had various lines of credit)
- 10% — Types of credit used (installment, revolving, consumer finance)
- 10% — Recent search for credit and/or amount of credit obtained recently
Checking Your FICO Score & Credit Report
You can request one free credit report from each of the three main credit reporting agencies each year. To do this, visit each of the following websites:
You can also use a company that gives you access to all three credit reports and FICO scores on one page and guides you through finding and reporting potential errors. These include:
Interpreting your FICO score
Now that you have your FICO score, what does it mean? The following chart shows you where you fall on the FICO table and how this will effect your ability to get a loan.
700 & above: Excellent credit. You will be able to get a loan at the best rates.
680 to 699: Good credit. You should be able to easily get a loan at decent rates.
620 to 670: OK credit. You should be able to get a loan, but perhaps not the best rates.
580 to 619: Poor credit. You may be able to get a loan, but it will be on the bank's terms and not the best rates.
580 & below: Bad credit. You will not be able to get a loan.
5 steps to Increasing your FICO score
There are several things that you can do to improve a lower FICO score, including:
- Pay on time. Late payments to your credit cards, mortgages, and more will lower your credit score. Paying your bills on time for several months will help to start increasing your credit score.
- Get caught up. If you're behind in paying on your accounts, the first step to improving your score is to get your payments current. Once you're caught up, continue paying on time and you'll start to increase your score over time.
- Reduce balances. If you have balances on your credit cards, work on paying those down. If your total balances are more than 50% of your credit limit, this will lower your credit score. Work on reducing your balances by paying more than the minimum payment and reducing your credit card use. Your score will start to improve as you lower your balances.
- Give yourself time. If none of the first three apply to you, then perhaps you just need to give yourself time. A longer credit history of responsible credit use increases your credit score. If the above do apply to you, work on improving those and over time your score will improve.
- Correct credit errors. Check your credit report regularly (at least once a year) for potential errors that could bring down your score. If you find any errors, contact the credit reporting bureaus immediately.
In addition to the above, you should avoid requesting additional or new credit as this lowers your score. You should also quit using store-specific credit cards or even consider closing those accounts if you have a zero balance.
Disclaimer: This site and its services are for informational purposes only and are not a substitute for professional advice, examination, diagnosis or treatment. See full disclaimer.
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