A lot of people aren’t exactly sure what their credit score is, or even what it means. Here, we’ll shed a little light on that elusive number.
An individual’s credit score is their FICO number. FICO stands for the Fair-Isaac Corporation, which is the company that first created the formula for attaining the best credit score. Nearly every purchase or bill payment is used to come up with this number.
A FICO score is broken down like this: 35% for paying bills on-time, 30% for the ratio of debt to credit limit, 15% for the length of the credit history, 10% for new loan requests, and 10% for existing credit cards and loans. The highest credit score possible is 850, with anything above 700 being considered “good credit”. Having a FICO score of 700 or above is vital to ensure being able to get the best rates on loans and mortgages.
There are three major credit reporting bureaus, and they earn their paycheck by sharing your credit history with lenders, banks, and creditors. Having a high score from one bureau doesn’t mean that a person will have the same score from another one, because creditors and lenders usually average out the number from each credit bureau.
Improving your credit report is as easy as lowering debt, stopping frequent inquiries into your credit history, paying bills on schedule, not closing accounts, and having a longer credit history.