A FICO score is one essential part have knowing how to manage your finances. The number is determined using a very difficult and confusing system used by lenders and underwriters. It is not necessary to know everything about this system but knowing a thing or two can prove to be a large benefit to you in keeping up your score. The more your know about the system, the more you can use it to your advantage and this is really the way of keeping your credit score afloat. It is key.
The first thing you need to know is the basics of how the FICO system works and what qualifies you for good or bad credit. The highest score you can get in 850. This should be common knowledge but I have been surprised time and time again at the number of people that don't know this basic thing. If you did not know, don't worry. After today, you'll know a lot more than most. The ideal range for your credit score is 720 to 850. This is extremely good. Again, don't worry if this isn't you. If you score is about 675, you are still in very good shape. If it's below 675, there may be some trouble borrowing money in the future. 300 is the lowest.
This FICO score is compiled by many different factors. 35% of your credit has to do with your punctuality of making your payments. Any payment that is more than 30 days late is reported to the credit bureaus and a lower score is the result. 30% of the FICO score is dependent upon your total debt. This means the ratio of your revolving debt. Still confused? Revolving debt is a credit card. Debt that is always available in a certain range. The ratio is how much debt you still have in comparison to the limit on that line of credit.
15% of the FICO score is based on how long you have had credit. Not only credit in general, but also a particular line of credit. If you have a car payment and have made regular payments for the last three years, this is actually better than paying it all off in cash. At least for your credit score. There is a point of diminishing return though so this isn't always the smartest move.
There are also a couple of unique things that can affect you credit score such as how much money you owe to a court judgement or money you owe on a tax lien. These have much larger penalties, as does any kind of bankruptcy as you could imagine. The number of accounts you have open also affects your score even though it may improve the debt/credit ratio. Each time you make an inquiry on your credit, it also affects your score. Some pulls hurt more than other though. For example, if you are checking your personal credit, this is considered a soft pull and won't really affect your score.
The first thing you need to know is the basics of how the FICO system works and what qualifies you for good or bad credit. The highest score you can get in 850. This should be common knowledge but I have been surprised time and time again at the number of people that don't know this basic thing. If you did not know, don't worry. After today, you'll know a lot more than most. The ideal range for your credit score is 720 to 850. This is extremely good. Again, don't worry if this isn't you. If you score is about 675, you are still in very good shape. If it's below 675, there may be some trouble borrowing money in the future. 300 is the lowest.
This FICO score is compiled by many different factors. 35% of your credit has to do with your punctuality of making your payments. Any payment that is more than 30 days late is reported to the credit bureaus and a lower score is the result. 30% of the FICO score is dependent upon your total debt. This means the ratio of your revolving debt. Still confused? Revolving debt is a credit card. Debt that is always available in a certain range. The ratio is how much debt you still have in comparison to the limit on that line of credit.
15% of the FICO score is based on how long you have had credit. Not only credit in general, but also a particular line of credit. If you have a car payment and have made regular payments for the last three years, this is actually better than paying it all off in cash. At least for your credit score. There is a point of diminishing return though so this isn't always the smartest move.
There are also a couple of unique things that can affect you credit score such as how much money you owe to a court judgement or money you owe on a tax lien. These have much larger penalties, as does any kind of bankruptcy as you could imagine. The number of accounts you have open also affects your score even though it may improve the debt/credit ratio. Each time you make an inquiry on your credit, it also affects your score. Some pulls hurt more than other though. For example, if you are checking your personal credit, this is considered a soft pull and won't really affect your score.
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