What Everyone Needs to Know About Their FICO Score

An individual’s FICO score is their credit score. FICO is an acronym for Fair Isaac and Company. Fair Isaac and Company created a mathematical formula to calculate a credit score based on an individual’s history of payments and credit accounts. The formula for the FICO score was created in the 1950s, but has recently become more widely known and utilized as an aggregate measure of an individual’s credit history.

What Determines a FICO Score?

The FICO score is calculated using an individual’s payment history, late payments, missing payments, open accounts, amount of available credit utilized, the length of the person’s credit history and negative elements such as charge-offs and bankruptcies.

One additional factor that impacts a FICO score is the number of times inquiries are made for the individual’s credit history. Several inquiries will have a negative effect on one’s FICO score. When applying for a loan or mortgage, do not apply with several companies at one time. Select one or two companies and apply for the loan or mortgage only with these companies.

About 35% of a FICO score is based on payment history. Around 30% of the score is based on amounts owed to creditors. Length of credit history accounts for about 15% of the FICO score. Types of credit accounts and new credit comprise about 10% each of the formula.

Credit Bureaus and FICO Scores

Each credit bureau calculates their FICO score for an individual’s account. Each credit bureau has a certain degree of liberty to base the FICO scores they calculate on their own specified criteria. This is why there may be discrepancies between the three major credit bureaus with regards to one individual’s credit score. The calculation used to figure the FICO score is not public knowledge. Only the three major credit bureaus and the Federal Trade Commission know the exact details of the FICO score calculation.

What Are the Ranges of FICO Scores?

The highest FICO score that an individual may attain is 850. Rarely, however, is a score of 850 attainable. The individual would have to exhibit an absolutely perfect credit history for this score. The vast majority of the population considered to have good or very good credit fall in the 700 to 800 range. Thirteen percent of the U.S. population has FICO scores that are between 800 and 850. About 27% of the population has credit scores that are between 750 and 800. Eighteen percent have FICO scores that are between 650 and 700 and 15% are between 600 and 650.

The lowest possible FICO score is 300. On the lower end of the spectrum, just 2% of the population has a FICO score less than 500. Five percent have a credit score between 500 and 550 and 8% are between 550 and 600.

The median FICO score is 723 and the mean score is 693. The median score is the score that indicates exactly 50% of the population is above this score, and 50% is below. The mean score is an average of all FICO scores.

The FICO score also predicts an individual’s reliability when it comes to making payments, and making on-time payments. As the FICO score goes statistically lower, so does the statistical incidence of delinquent payments.

Why Is My FICO Score So Important?

An individual’s credit history will follow them throughout their life. The lower the FICO score, the less likely the individual will be to qualify for mortgages and car loans. If the individual does qualify for a home loan or car loan, they will be required to pay higher interest rates due to their lower credit rating.

An individual’s credit score may also affect their car insurance rates and even their ability to get a job. Many car insurance companies use the FICO score to calculate policy rates. More and more companies are checking job candidates’ credit scores prior to hiring them.

Knowing your credit score is important. Many of the credit reporting services provide you with each credit bureau’s FICO calculation. Some will allow you to set alerts on your credit accounts that will email you if there is a change to your score.

Monitoring your credit is crucial in today’s world. Factors out of your control may impact your credit score, such as identity theft. Once your FICO score is lowered, it may take several years to redeem your credit rating. There is no magic way to fix your credit score. Improving your credit is a lot like losing weight. It just takes time and consistency.