Your Life Reduced to Three Digits
Every financial move you make for the rest of your life will be somehow linked to your FICO score. You must know how your score is calculated, how it’s used, and how you can improve otherwise your financial life might be a constant struggle.
A FICO score is a three digit number that determines the interest rate you will pay on your credit cards, car loan and home mortgage.This score is based on your spending, bill payment habits, and overall debt load.
There are five categories that have varying degrees of importance in calculating your FICO score.
Are you paying on time or constantly paying late? This accounts for 35% of your score
2. AMOUNTS OWED vs TOTAL CREDIT LIMIT
How much credit are you using versus the amount that you have. This accounts for 30% of your score.
3. LENGTH OF CREDIT HISTORY
How long have you had credit. Generally, the longer an account has been open and active, the better it is for the credit score. This accounts for 15% of your score.
4. NEW CREDIT
Number of recently opened accounts and credit inquiries. This accounts for 10% of your score.
5. TYPES OF CREDIT USED
A mix of credit cards and loans. This accounts for 10% of your score.
A high FICO score gives you a great reputation, you get better deals. A low FICO score translates into higher interest rates.