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 part of knowing how the FICO scoring system works is to know what qualifies as a good credit score. The highest score you can receive is 850. The best range is between 720 and 850, with scores from 675 up to 719 still representing good credit. Scores below 675 may have trouble getting good terms on money borrowed, and below 620, it may be hard to get credit at all. A score of 300 is the bottom of the FICO score ladder.

A FICO score is comprised of many different parts. To determine your FICO score a bureau looks 35% at your paymnet history, meaning how many payments are delinquent or late. If a payment is past thirty days late, it is reported to a bureau and they will then lower you FICO score. Another 30% of you FICO score depends on you credit/debt ratio. Not know what this means? That’s ok too. Let’s say you have a credit card with 10,000 dollar limits. If you have used 4,000 of that, your debt-credit ratio is 40/60. This is ideal.

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.

Lastly, there are a few things to go over that can adversely affect your credit score that we have not yet talked about. if you have a bankruptcy, owe monies to a court judgment or tax lien, all of these can hurt your overall credit score very significantly. The number of credit lines you have open is also important. If you open a fifth line of credit to increase your debt/credit ratio, you are likely doing more harm that good. be watchful also of the number of times you pull you score. Each time you pull it, it counts against you as a credit inquiry. Some hurt worse than others but just be careful.

SBFC law group SBFC law group