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Understanding Your FICO Score

Your FICO score is an important measure of your credit worthiness. It gives companies an idea of how much of a credit risk loaning money to you will be, as well as an indicator of how likely you are to repay the loans or credit card on time.


Credit Score and FICO

The most commonly used credit scores are known as FICO scores. These scores allow companies to make numerous decisions regarding credit worthiness every year. The scores are developed by FICO and are based on information in credit reports from one of the three major credit agencies in the United States: Equifax, Experian, or TransUnion.

Your FICO credit score not only helps lenders determine if you can get a new credit card or loan, but it also helps them determine the terms of the credit or loan, such as interest rate. Thus it’s important to know exactly what your FICO score is. The higher your FICO score, the more favorable terms you are likely to receive.

It’s important to note that the FICO score is not the only criterion credit card or loan companies look at. Lenders may also take a peek at information such as the amount of debt you can handle based on your income, your employment history, and credit history. Your FICO score is not a determination of the accuracy of the information in your credit report; if you find an inconsistency on your credit report you will want to correct this through the appropriate channels as soon as possible.

The Credit Report: What’s In It?

Your credit report is made up of several sections of information. The first section is your personal information; your current address, name, date of birth, and social security number. This information, while important, is not used to determine your FICO score.

The next section is a summary of credit accounts you currently have. In general, this information includes the account type, the date it was opened, credit or loan maximum, your payment history, and current account balance. If you continue to carry a maxed out amount on your cards each month, this will negate any good work you’ve done by paying bills on time.

The third section of your credit report includes the number of recent inquiries you have made. Every time you apply for a loan or a credit card, regardless of whether or not you are accepted, a new inquiry is added to your credit report. This section of the report includes those who accessed your credit report within the last two years.

If you have late or missed payments, it will show up in the final section; this is where all negative items are listed. Other negative items can include bankruptcies, foreclosures, garnishments, legal suits, judgments, and tax liens.

FICO scores do not include some information. Marital status, race, nationality, or gender are not considered and, in fact, are prohibited from being used by lenders thanks to the Equal Credit Opportunity Act.

The Score Itself

All of the information on your credit report is used to calculate your FICO score. The score is a numerical rating, ranging between 300 and 850. The higher your score, the less of a credit risk lenders are going to consider you. It’s important, however, to know that each lender has its own guidelines, so what is considered a high-risk score to one lender might be considered an acceptable risk to another lender.


Robert Kramer writes on credit, financial regulation, economic growth, business development and other like topics. To learn more about credit click here for excellent information.

About the author

Praveen Rajarao

Praveen Rajarao is an Entrepreneur and in his spare time blogs on his website –http://www.dailymorningcoffee.com and http://www.pbgeeks.com. His topics range from blogging to technology to affiliate programs and making money online and how-to guides. Daily Morning Coffee is also accepting Guest Posts from Professional Bloggers at this time, take a look at “Write For DMC” page for more details on the same.

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