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Understanding Your FICO Score

Your FICO score, also known as your credit score, is a rating given to your past performance at incurring and paying debt. The score is determined by a proprietary algorithm owned by the Fair Isaac Corporation. This algorithm, or formula, is then applied to the information contained in your credit report as published by any one of the three main credit reporting agencies in the United States; Equifax, Experian or TransUnion.

On average 35% of your FICO score is determined by your payment history. This is where late payments hurt you and credit card accounts that you have had for years help you. The next 30% is determined by the amounts owed. Here low balances will help your score and high availability of credit will hurt your score. 15% is determined by the length of credit history. This area is pretty straightforward in that older accounts score higher than newer accounts. The final 20% is broken into two areas of 10% each; types of credit used and new credit. In the area of types of credit used the formula looks at the diversity of accounts as well as the total number of accounts. New credit looks at not only the number of accounts recently opened but also the number of accounts applied fro recently. These percentages are averages and do not apply to everyone. There is some variation.

It is important to not that factors not related to debt and debt payment are not included. These include such things as your age, your occupation and martial status. Not even your income is included in this scoring.

Understanding your FICO score is important in this day. Many potential employers will check your score as a condition for employment. Most insurance companies will also determine your rates partially by your credit score. Finally not only will it impact if you can qualify for a mortgage but also what your interest rate will be on that loan.

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