FICO Basics

Basics of your FICO score

We all live by three little numbers. It determines whether or not we can buy a car, get a credit card, or sometimes even can affect our employment. It is our FICO score, and is a measure of how credit worthy we are. The FICO score was originally devised by the Fair Issac Corporation, hence the abbreviation, and was first introduced in 1989. It is now considered the industry standard.

Your FICO score depends on a number of criteria:

35% is based on past payment history
35% is based on the types of loans you have
30% is based on how much debt you carry
15% is based on the length of your credit history
10% is based on new credit recently opened

Credit scores range from 300 to 850, with anything below 550 considered very, very poor and above 690 very, very good. The median credit score today is around 720. And the credit score from each of the "big three" credit reporting agencies can vary from firm to firm, as each uses its own proprietary formula for FICO calculation. So don't be alarmed by a 20 or 30 point swing from one agency to another. The key is to make sure each agency has identical and accurate information on your credit history.

So how does one maintain a good credit score? Pay bills on time, every time. Use secured credit whenever possible. Pay off debt when practicable, and instead of closing accounts, keep them open with zero balances. And above all, maintain your credit statistics. In other words, maintain a constant debt to income percentage and other credit performance metrics. What an agency doesn't like to see are missed payments, lots of unsecured credit, high debt loads relative to income and tons of new applications.

Keep these ideas in mind, and you will find it easy to maintain your score north of that magic 690 number.