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Fico and Credit Score

Fico and Credit Score. We explain how your FICO Score works.

Raise Your FICO Score

If you use credit, you have a credit score, and it's used by credit card companies, home equity lenders, auto loan lenders and finance companies when you apply for credit or a loan. FICO stands for Fair, Isaac and Co., leading to the somewhat generic term "FICO score." Your FICO and credit repair are closely related.

Your credit score is meant to be a snapshot, or summary, of your credit history. A lower score can result in your not getting a credit card or loan, or that if you do, you will pay a higher interest rate. Also, some lenders will take your credit score and other information to use and set the "price" for your loan.

FICO considers the following credit factors (the approximate weight it assigns to each factor is in parentheses) when assigning a score:

• Payment history (35%). Your score will be negatively affected if you have paid your bills late, had an account sent to collection or declared bankruptcy. The more recent your debt problem, the lower your score will be. A 30-day late payment today will hurt more than a bankruptcy from five years ago.
• Outstanding debt (30%). If the amount owed is close to your credit limit, this will likely have a negative effect on your score. So, a low balance on two cards will be better than a high balance on one. . Length of your credit history (15%). The longer your accounts have been open, the better your score.
• Recent inquiries on your report (10%). If you have recently applied for many new accounts, that can negatively affect your score. Promotional inquiries, though, won't figure here.
• Types of credit in use (10%). Loans from finance companies will lower your credit score. FICO says this is particularly important when there isn't a lot of other information on which to base a score.

You can factor in your FICO and credit repair together. If you want to improve your credit score, which will improve your credit, overall, take the following steps:

• pay bills on time
• update your older accounts for accuracy
• don't maximize your credit lines
• limit the number of times that you apply for credit
• maintain your charge/credit accounts for a long period of time
• keep your distance from finance companies

Don't give up on hope just because you have a low score. Many lenders will override credit scores if they think you are a good risk despite problems with your score.