What in the World is FICO?

You may have heard these initial thrown around before and been left wondering what the? Wonder no more, all FICO is, is an individuals personal credit score. This concept was first developed by a company named Fair Isaac Corporation, thus FICO. This score has a scale that ranges from 300 to 850. You are then placed somewhere on this scale according to the types of credit accounts that you hold and on your personal credit history. The average American's score falls over 600.

Several things affect your FICO credit score. If ever there was a good reason to pay your bills on time, this is it: payment history accounts for 35% of your score. That is a huge chunk, don't you think? The less you pay your bills on time and according to schedule the lower your score will be.

Another factor that has a somewhat large effect on your score is the amount of debt that you own and the amount of credit that is still available to you. They way that this is calculated is by adding up everything that you owe, auto loans, mortgages, credit cards, all of it and then comparing it to your annual salary. Next the amount of credit that you can still access is added up and it will be compared to the amount of credit that is being used by you at this present time. In the end the more credit you still have available, the better your FICO score will be. This calculation accounts for 30% of your total score.

The next thing that is looked at is only worth half as much of your final score, 15% of the total. This is your credit history, specifically the length of it. The longer you have been dealing with credit the better your score is going to be for it. And if you have been dealing with the same credit company for most of this time that is even better.

The fourth aspect of your credit that is taken into consideration is the mix of credit that you have. The more divers the forms of credit the better your FICO score will be because of it. This has a value of 10% of your final score.

And last but not least is the number of applications that you have filled out in the not so distant past. This hurts your score because it makes lenders wary of you and what might be wrong. They find themselves asking why you are so desperate for credit all of a sudden. This is worth another 10% of your FICO score.

While your FICO score is not the only thing that is looked at by lenders it does play a big part of the decision making process. This is the main way that they determine the risk involved in dealing with you. Effort should definitely be put into getting your FICO score to a healthy number, if you don't you will find it difficult if not impossible to get approved for loans in the future.

If you do plan on applying for a big loan, like a home loan in the near future it is a good idea to get a copy of your report at least 6 months in advance. That way you will have time to deal with any little details that could nix the deal for you.