Often the terms “credit score” and “FICO score”are used interchangeably. They both give creditors the same number when it comes to determining whether or not they will grant an individual credit or not and at what interest rate.
Established in the 1960’s, Fair Isaac Company or FICO, is a credit-reporting agency that assigns a score between 300-850. The better your credit, the higher the number. Having a high credit score does have its advantages, including lower interest rates on loans. On the flip side if you have a low score you may end up paying higher interest rates or having your request for a loan turned down.
There are several factors that determine your FICO score, the top 5 are:
• Payment history on previous and current debt makes up 35% of the score.
• The amount owed to current creditors accounts for 30% of the score.
• The length of your credit history counts 15%.
• New credit will also affect the score and accounts for 10%.
• The type of credit you have accounts for 10% of the score.
As you can see the most important is payment history. By making your payments on time while avoiding hefty outstanding balances you can influence your score automatically. The good thing is, if you have had issues in the past and your credit is less than perfect you can fix it. Fixing your credit and improving your score does take some time but in the long run it is worth it, especially if you plan to make a large purchase such as a home purchase where you will require a large loan.
Improve your score by fixing any errors on your credit report and share information with FICO to help keep your credit histories updated. If you are planning to buy a home, pull your credit report before applying for the loan so you can make sure there are no discrepancies that need to be addressed. Having a high score can save you thousands of dollars in interest payments and could mean the difference between approval or rejection.