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How the FICO Credit Score is Calculated

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By: Brooke Kaelin

In this article we’ll take a look at exactly how your FICO score is calculated, and what constitutes a good (and bad) credit score. We’ll also answer a few common credit score questions and finally give some suggestions on things you could do to improve your credit score.

How is my FICO Score Computed?

Your FICO Score is computed using all of the following things:

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What is a FICO score?

A FICO score is a credit score that was developed by Fair Isaac and Company. Lenders use this number in part to decide whether or not to give you a loan. Most lenders offer different interest rates to you depending on how high or low your score is.

Your FICO score:

All FICO scores range from 300-850. The higher your score is, the more likely you are to get a loan. The lower your score is, the less likely you are to get a loan.

If you have a low FICO score and you do manage to get approved for credit then your interest rate will be much higher than someone who had a good FICO score and borrowed money. So, basically, having a high FICO score can save you hundreds, if not thousands of dollars over the life of your mortgage, auto loan, or credit card.

What is considered a good (or bad) FICO score?

  • Scores between 720 and 850 are considered a good credit risk. They normally qualify for the best interest rates on a loan. and can receive instant credit approval nearly anywhere. This is the ideal range for your credit score to be in.
  • Scores between 600 and 720 are considered a moderate credit risk. People who’s scores fall into this category will not normally have trouble getting a loan, but they will pay more in interest than people who have score above 720.
  • Scores between 500 and 600 are considered poor credit. If you fall into this category, you will have difficulty getting a loan. If you do manage to get a loan you can expect to pay double digit interest until you manage to raise your score and refinance.
  • Scores below 500 are considered a terrible credit risk. If you fall into this range you will most likely not be able to get a loan of any type, although you may qualify for a secured credit card .

How can I check my FICO score?

You can check your FICO score by paying to see it at any of the three credit bureaus, or you can check your FICO score for all three bureaus at once by going here .

If you are planning to apply for a credit card, or especially a mortgage

or auto loan then it is vital that you know your score before applying. Every time you request a loan it can lower your FICO score, so you need to know where you are starting from before you apply for credit.

How can I raise my FICO score?

There are several simple ways to raise your FICO score:

Pay all of your bills on time, every time. This includes your utility bills, mortgage and auto payments, and all of your revolving lines of credit like credit cards.

Check your credit report at least once a year – You can find out how to get your free credit reports here. Then, you should dispute any negative information you find. (Read: How to remove negative information from your credit reports )

Do not charge more than 30% of the available balance on any of your credit cards. Banks like to see a nice record of on-time payments, and several credit cards that are not maxed-out. If you are carrying high balances on your credit cards, then make paying them down under 30% a priority.

Do use your credit cards – Many people who make mistakes with their credit believe that the best way to fix things is to never use credit again. If you are afraid that you cannot handle your credit cards correctly then the best policy is probably this one: Run only your utility bills on your credit cards each month, and then pay the balance in full by the due date. This ensures that your utility bills get paid on time automatically, and as long as you keep the habit of paying off your credit card balance each month your score will continue to go up. Leave the credit cards locked in a safe or drawer at home.

Keep your accounts open as long as possible – Even if you are no longer charging on the card. The best policy is to keep those unused accounts open, blow the dust off your card every few months to make a small purchase, then pay it off. How long each of your accounts have been active is a major factor in your credit score.

Remember that it will take time – Following the above steps consistently over a long period of time will repair your FICO score and allow you to qualify for better loans and interest rates. Repairing your FICO score does not happen overnight though, so if you do these things for a few months and do not see a large increase in your score, do not give up. They are all habits that you will want to maintain throughout your life to be sure that you keep your finances and lines of credit under control.


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