What is a FICO Score?
The credit card industry as well as the business of providing loans and mortgages relies on a system that accurately predicts your creditworthiness. Devised by the Fair Isaac Corporation in 1958, the FICO credit score relies on a statistical analysis of a person's credit report provided by three information providers - Equifax, Experian, and TransUnion. FICO scores ranges from 349 to 849 higher scores denotes better credit history. FICO scores are bought by banks and credit card companies. They use FICO scores to evaluate your capacity and ability to pay loans. A good FICO score translates into lower interest on credit cards, and easier payment schemes on bank loans. Translated into money, the amount you save from lower interest rates and better loan terms may add up to hundreds of dollars. Individuals can examine his FICO score for free because the FACT Act (Fair and Accurate Credit Transactions Act) entitles all legal US residents to a free copy of his credit report from each credit reporting agency.
What makes up my FICO credit report score?
The FICO score is based on the following items:
- 35% is based on payment history which in turn is determined by
- The accounts that are currently paid according to schedule
- Negative public records or collections
- Delinquencies such as number of past due items, how late your dues are and how long you have had your past due payments
- 30% is based on the amount you owe presently to credit facilities and lenders.
- 15% is based on the length of your personal credit history.
- 10% based on types of credit availed by you throughout your credit history.
- 10% depends on whether you get new credit.
How to raise my FICO credit score
Since the biggest contributor to FICO scoring is credit history, consistent payments on the last six months on any of your debts will likely increase your score. The credit reporting bureaus will interpret this consistent ability to pay as being responsible with credit matters.
Here are some concrete steps in raising your FICO score:
- Pay your bills on time. Delinquent payments, if even a few days late, negatively impacts your FICO score.
- Always be current on your payment schedule. If you missed payments and have a hard time to be current, try paying more than what you are billed for the month. Eventually you will repay your missed schedules.
- Try to pay off debt and never use your other cards to shoulder your debt. Your FICO score will surely increase because 30 percent of your score is based on the amount you owe.
