What's A FICO Score | What Do The FICO Scores Mean?

Your Fico score is calculated using a mathematical equation to compare information on your credit file with millions of other credit files. This score can identify your level of credit risk.

The higher your Fico score, the more likely it will be that you will be approved for a loan with lower interest rates.

The term “Fico Score Range” is the range of all Fico scores, which is between 300 and 850. More than 70% of the 100 largest financial institutions use FICO® scores to make their credit decisions every year, including over 75% of all mortgage loans.

Lenders use FICO scores to determine how you have managed your credit accounts in the past to help determine if they will give you a loan. This will also determine the interest amount you will pay on that loan. The higher your FICO score, the lower the interest rates.

Your FICO score is a valuable guide for money lenders and is based entirely on the information in your credit history. Lenders will also take into account the information you provide in your credit application. This could be, your income, how long you have been at your residence, and your payment history with other banks or lending institutions.

Your FICO score is divided into different sections:

• Summary– The summary shows your FICO score and the date it was calculated, with a description of what your particular score means. Other details on your FICO score are available in other sections.

• Top Positive Factors– The information listed in this section show areas of your credit behavior that are better than average. This contributes to a higher FICO score, and continuing to manage your credit over time will give raise your credit score even more.

• Top Negative Factors– If you have a high credit score, these items have not affected it and should not be taken too seriously. These are factors that have some room for improvement, and can give you a better understanding of how to manage your credit better.

• How Lenders See You– The majority of lenders use FICO scores to estimate your credit risk. People with high FICO scores are a better credit risk than those with lower scores. There is no way to absolutely predict whether an applicant will repay a credit account.

2 Things To Do In 30min To Raise Your Credit Scores 40-100 Points

 The first important step is to gain a basic understanding of how your credit scores are determined. I am sure this will be new information for you, since this is not taught to any of us in school. In fact, when it comes to the three credit bureaus, equifax, experian, and transunion, they prefer to keep everyone in the dark on how credit scoring works.

To explain what makes up your credit score in as simple terms possible, this is how it works

35% - Payment History Your history of paying your bills (on-time, late, etc.). The largest factor of your score.

Credit Utilization 30%:  The percentage of available credit used. Keeping your account balances below 50% of the available credit limit will maximize your scores. For the purpose of this article, this is where we will find the most room to quickly increase your scores.

 History 15%:  This is how long our accounts have been established. A more established account has more value than a new one.

Credit Inquiries 15%:  Whenever you apply for credit, an inquiry is registered on your credit reports. If you get too many, it can have a negative effect.

 Type of Credit In Use 10%:  Type of accounts, and number in use. Mortgage loans are the best, and finance company accounts are the worst.

 Since we now have an understanding of how scores are calculated, now we can focus on a couple of things we can do right now to maximize our scores.

 Get an increased credit limit.  This is very simple to do, and I think you will be pleasantly suprised by the success rate if you just make a couple easy phone calls. Just pick up the phone and ask to raise your credit limit. Now you can also use my favorite strategy and say something like, "I am considering a balance transfer to another card with a higher limit and better interest rate, but thought I would see first if you would increase my limit and possibly lower my interest before I cancel this card.". I have found this to be successfull nearly all the time, both personally as well as with my clients.

 As an example scenario, let's pretend that you have a credit card with a $5,000 limit, and a balance of $4,000 (80% utilized). You make a 10 minute call and get you limit increased to $6,500 which means now you are only 62% utilized. Much better, and immediately, your scores increase. Now we can do even better, which brings us to the next technique.

 Lower Your Balances! Continuing from the example above, you are now 62% utilized on your credit card. This means you still have some room to further maximize your scores. If you pay $750 on this credit card, you will bring the balance down to 50% of the new credit limit ($3,250 balance on $6,500 credit limit). Now, you might be saying that you don't have $750 to pay down your credit card. That's ok, you could stop here, you have already increased your scores, and you can get the limit raised for all your credit card accounts. However, if you are trying to buy a home, or even a car, you can potentially save thousands in interest on your new loan and get a lower monthly payment, just by paying a little down on your current accounts. When that results in higher credit scores, you may qualify for much better loan terms.

 Both these techniques are fast and easy, and have been proven to work time an time again. I have used them personally, as well as assisted clients with them. I am confident they will also work for you.

 These simple tactics are more appropriate for someone with a good payment history on established credit card accounts. It is recommended that you have at least 3 open credit card accounts to maximize your scores. One of these could be  a department store account. If you don't have enough credit, or have a negative credit history, perhaps more aggressive credit repair or credit building strategies would be more appropriate for you.

 Jon Ochs has over 12 years of experience in the credit and debt field and is the founder/CEO of (http://www.ncacreditrepair.com) NCA Credit Repair. You can learn more about establishing new good credit at (http://www.ncacreditrepair.com/credit-cards-all.html) Credit Learning Center.

by guest author - Jon Ochs

 This is one of my most favorite articles that I have written because it addresses so many questions that people have about credit. I love watching the eyes of my clients widen when they find out the truth about some of these most common myths.

 You will be hearing some things that will most likely be the opposite of what you currently believe. Keep in mind that credit and credit reports are not widely understood, and even those in the financial and credit industry, often do not have a good understanding. With that in mind, let's get started

 Myth 1: Paying off collection accounts, tax liens, judgments, or late payments will remove the negative item from my credit reports.

 This is simply not true. In fact, by paying off an old collection account, you can actually lower your credit scores. The reason for this is because more recent negative items will hurt your score more than older negative items. If you pay off an old collection account, not only will the collection account remain on your reports as a paid collection, but it will now show a current date, and cost your more points. I am not suggesting that you should not pay off your delinquent accounts, only that you need to understand the consequences so that you can factor that into your decision.

 Myth 2: If I pay my total credit card balance every month, I will raise my credit scores.

 Keep in mind that the credit system is designed by the creditors, to help them determine if you are a good credit risk, and if you are an optimal credit user (one who uses the system in such a way that it will generate revenue for the creditors). By paying off your accounts every month, you are not establishing a history of optimal credit usage. What your creditors want to see, is someone who pays slightly more than their minimum monthly payment every month, on time, with only occasional balance pay-downs. This behavior will optimize your credit scores.

 Myth 3: Repairing credit is illegal.

 This is far from the truth. In fact, credit repair is legal for you to do on your own, or hire anyone you choose to do it for you. Repairing your credit is a right protected under the Fair Credit Reporting Act (FCRA).

 Myth 4: Consumer Credit Counseling will improve my credit.

 We have all seen the statements made by credit counseling companies that state that their program will improve your credit. I can tell you that this is false. When you enroll into a credit counseling program, one of the first things that happens is a statement is inserted into your credit reports for each account included in the program. This statement will say something like "payments made through credit counseling", or "client in CCCS". This statement itself may not cost you any points; however it is looked at by the lending industry as very negative. It is like putting a sign on your forehead that says, "I can't pay my bills!" In addition, most credit counseling programs will make your payments late, and this will then cause you to have late-pays, which will cost you many points on your credit.

 Myth 5: Negative items have to stay on my credit for 7 years because that is the law.

 This is also false. There is no law that dictates the duration that an item must remain on your credit reports. The only thing that dictates that an item must remain on your credit report is that it can be proven to be 100% true and accurate.

 Myth 6: If you make a lot of money, you will have great credit.

 Your income does not play any direct roll in determining your credit scores. In fact, statistics show that large percentage of high-income earners have sub prime credit. Your credit scores are made up of several factors including payment history, account balances, types of credit in use, etc.

 Myth 7: I must have excellent credit because I have never been late on a payment.

 Your timeliness of payments does make up 35% of your credit scores, but the other 65% is made up of other factors that are not related to making your payments on time. It is important to understand all those factors to maximize your scores.

 Myth 8: Your credit reports from all 3 major credit bureaus will be the same.

 This is not true. In fact, most of the time, all 3 of your credit reports will differ from one another. The reason for this is that each of the credit bureaus is a separate independent company, and the processes at each are different. Also, some creditors may only report to 1 or 2 bureaus, but not all 3. In my experience, your reports will very rarely be exactly the same.

 Myth 9: Once you are married, you and your spouse share the same credit.

 False! This is something that many believe, but it is absolutely not true. Every individual has their own unique credit reports. You may share some credit items with your spouse if you have joint accounts.

 Myth 10: Closing credit card accounts will increase your credit scores.

 This is one of the biggest surprises that I see happen to people all the time. You go to your mortgage lender and they instruct you to close some accounts in order to qualify for a loan. You do as you are told, but only to see your scores plummet almost immediately; sometimes by more than 100 points. What happened? The reason for the drop was because you just closed some of your oldest and most valuable accounts as far as your credit scores were concerned. Remember, the longer you have had an account in good standing, the more positive points it will provide. It is not advised to close a long-standing account unless you have good reason.

 Armed with this new knowledge, you can now get started putting it into action to improve your credit, as well as share it with others.

 Jon Ochs is the founder/CEO of NCA Credit Repair Inc., a nationally recognized and trusted Credit Repair Company. For more information about building your credit, or credit repair, visit the website at http://www.ncaCreditRepair.com