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If you want the best possible finance rates, you need a good FICO score. Understanding what this score represents, and what elements of your credit history affect it, makes it easier to assess your financial situation and take the necessary steps to become a more attractive prospect to lenders.
You can check your credit score for free at The bank rate.
What is a FICO score?
The Fair Isaac Corp. created the FICO Credit Score as a way to assess credit risk. The score takes into account various elements of your credit history to determine whether it is wise for a business to extend credit. A high score represents a strong credit history, which means lenders and insurers are more likely to offer credit.
What is a good FICO score?
FICO scores range from 300 to 850:
- 800+ is exceptional.
- 740 to 799 is very good.
- 670 to 739 is good and represents the median credit score range.
- 580 to 669 is below average.
- 579 or less is poor.
See where your credit score is. Check it out for free on Bankrate.
How is your FICO score calculated?
Understand how Fair Isaac Corp. calculates scores FICO makes it easy to adapt your lifestyle to improve your own score. The score consists of five main items derived from your credit history, and each item contributes an amount in total based on its importance:
- Payment history: 35%.
- Amount of debt: 30%.
- Length of credit history: 15 percent.
- New credit: 10%.
- Credit composition: 10%.
Your payment history factor stems from your ability to pay credit accounts on time. This is the most important factor because lenders need to know that you are paying off your debts on time.
Amount of debt
The amount of your debt represents the amount of money owed. Lots of debt doesn’t necessarily mean you have a low credit score, as the value takes into account the amount of credit available as well as the amount owed. For example, if you hit a credit card maximum of $ 5,000, your FICO score may be lower than someone who owes more than $ 20,000, but remains well below their credit limit. .
Get your free credit report and score today on Bankrate.
Length of credit history
A longer credit history usually increases your credit score. The score takes into account how long you have had your credit accounts and how long you haven’t used certain accounts.
Opening multiple credit accounts over a short period of time indicates that you are a greater risk to lenders. This is especially true if you don’t have a long credit history.
The combination of credit types you use also has an impact on your score. This takes into account credit cards, retail accounts, finance company accounts, and mortgages.
How to find out your FICO score
Fair Isaac Corp.’s myFICO website. offers a free FICO estimator. By accurately completing a series of questions regarding your financial history, it is possible to determine an estimate of your current score.
Additionally, many financial institutions are part of the FICO Score Open Access program, which allows institutions to offer clients free access to their FICO scores.
How to improve your FICO score
Your FICO score is not static and you have the power to improve it. Start by checking your current score, then identify areas of your life that may be having negative impacts. Here are some helpful ways to improve the situation:
- Pay your bills on time. Paying even a few days late has an impact, so set up payment reminders and settle accounts as soon as they’re due.
- Keep your credit card balance low.
- Pay off debts rather than move them. It is often better to owe a sum of money on one account than to owe the same sum on several accounts.
- Don’t open new credit accounts until you need them. Opening multiple accounts over a short period of time often lowers your credit score.
FICO scores are the most commonly used credit scores in America. Your score determines how much you can borrow and the rates you can get. So whether you’re buying a new car or using a credit card, having a good FICO score pays off.
Remember, your FICO score is an instantaneous, with the potential to change. Take the necessary steps now to improve your credit score and reap the rewards when you need them.
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