WHAT IS A FICO SCORE?

Pondering buying a new house, new car or even a refinacing your home, someone is going to ask, "What is your FICO score?"

First things first, what is FICO?  FICO stands for Fair Issac Corporation.  In 1956, William Fair and Earl Issac developed a software program for assessing credit risk and determining credit worthiness.   Today, FICO is the most widely used tool financial institutions use to determine whether to lend money or issue credit.

FICO scores range between 300 to 850 and in general scores above 650 indicate a very good credit history.  

Achieving a high FICO score is based on having a mix of credit accounts and maintaining an excellent payment history.  A low score is based on maxing out credit cards, paying late and applying for excessive credit.

In calculating FICO scores the following factors are taken into consideration:

  A. Payment history - whether an individual pays his credit accounts on time.
  B. Accounts owed - the amount of money an individual owes or the ratio of money owed to the amount of credit available.
  C. Length of credit history - takes into account how long the oldest account has been open and the age of the newest account and the overall average.
  D. Credit Mix - looks at the types of accounts - retail, credit cards, installment loans, vehicle loans and mortgages.
  E. New Credit - to recently opened accounts in a short period of time.

Knowing and understanding the factors that determine FICO scores is important when it comes time to buy a new house or refinance your current home. 

Do you know your FICO score?