You’ve likely heard the term FICO Score tossed around a number of times. This is especially true if you’ve recently applied for a loan. The Fair Isaac Corporation, based upon the information contained in your three credit reports, calculates your FICO Score. The score is determined by five factors: debt level, payment history, credit diversity, age of credit history, and new accounts.

Understanding Your FICO Score

This is what you need to know for understanding your FICO Score.


What Is a FICO Score?

Essentially, your FICO score is just one version of a credit score. Various companies compile and report scores to rate the creditworthiness of consumers. Lenders use a composite of these scores to determine whether or not they should lend money to someone, and at what interest rate. A FICO Score can range anywhere from 300 to 850. The higher your score, the better it’s considered to be. To get more specific, with FICO Scores, 670 is typically the cutoff for where credit is considered “good.” Below that, you might have a tough time qualifying for a loan without excessive interest rates.

The scoring mechanism is altered occasionally to reflect current conditions. This ensures the score is always providing as accurate a representation of a potential borrowers’ credit history as possible.

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Why Is Your FICO Score Important?

Simply put, your FICO Score plays a significant role in your financial life.

The vast majority of lenders, to determine whether they should loan money, use FICO scores. Some have minimums they require for all loans — meaning yours will be automatically denied, even if you’re only a few points below the threshold. Without a solid score, it might be difficult for you to get money when you need it.


People who are struggling to improve their score due to credit issues might want to look into debt relief programs. Organizations like Freedom Debt Relief have a long history of assisting people deep in debt find a way out of it.

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What Makes a Good FICO Score?

Again, five distinct factors decide your FICO Score, each of them weighted slightly differently.

  • Payment history accounts for 35 percent of your FICO Score. Consistently paying your bills on time is essential to building and keeping good credit.
  • Debt level is almost as important at 30 percent of your calculation. This is often referred to as your debt utilization ratio. If you’re close to maxing out your credit cards with $1,000 total, that’s going to look a lot worse than someone with $1,000,000 in debt but a much higher debt ceiling. You want to keep your utilization below 30 percent of your available credit.
  • Credit diversity is 10 percent of your FICO Score. It’s good to show that all your debt isn’t in one basket.
  • New Accounts make up 10 percent of your FICO Score. Lenders don’t want to see that you’ve opened a bunch of new accounts over the past few months, as that’s indicative of risky behavior.
  • Age of Credit History is 15 percent of your FICO Score. Lenders will see you as more predictable if you have a longer credit history.

It’s important to know how all these things are going to interact with your FICO Score. Overall, FICO Scores are going to be relatively in-line with your general credit history. If your score is on the lower end, focus on ways you can bring it up even a few points. That can make the difference in your ability to secure a good loan.