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What Is A FICO Score And How Does It Affect You?

Paying your bills on time and managing your credit wisely is the best way to earn a good FICO score.

By Scott Reeves

Your credit report and FICO score are interrelated but separate components of your credit history.

The FICO score, compiled by Fair Isaac Corporation (FIC), is derived from information in your credit report, including payment history, outstanding debt, length of time you’ve had credit, new credit and types of credit you currently have. The credit score is reported on a scale of 300 to 850. The FICO score doesn’t consider your race, religion, age, sex, marital status or where you live.

“Those three little numbers can make a big difference in your financial life,” says Gail Cunningham, Vice President for Business Relations at Consumer Credit Counseling Service of Dallas. “The credit score is a predictor of risk. The higher your score, the lower your interest rate on loans, credit cards and mortgages.”

The credit report includes personal information, a credit summary, account information, inquiries, collections, public records as well as instructions on how to dispute information in the report, a summary of your legal rights and tips on how to counter the effects of identity theft.

In general, the components of your FICO score include payment history, 35%; amount owed, 30%; length of credit history, 15%; new credit and types of credit used, 10% each.

The FICO score is based on the information compiled by the three major credit reporting bureaus and therefore may vary slightly. The median FICO score is 723.

In general, people with a score of 720 or higher have a good chance to secure loans at the best rates, sometimes with no collateral or down payment. A score between 680 and 720 usually means a loan won’t be offered on the most competitive terms. Those scoring between 620 and 680 will have little or no flexibility in securing a loan and the lender is likely to do everything by the book. Anyone scoring 580 to 620 will almost certainly be asked to provide additional information and make a case for compensating factors to secure a loan. If you score under 580, expect to be required to make a substantial down payment and collateral may be required, industry guidelines state.

Paying your bills on time and managing your credit wisely is the best way to earn a good FICO score. Keep in mind that a negative item will affect your score more quickly than a string of positive items. Late payments will drag your score down in just a few months while paying bills on time may require six to 12 months to significantly boost your score.

Federal law requires the three major credit bureaus to provide consumers with one free copy of their report each year. To download and print a copy of your report from Equifax, TransUnion and Experian, click to, the official Web site for free reports.

The FICO score is usually available as part of a paid subscription to a credit monitoring service or a software package designed to help you manage your credit. The score may be available as part of a “free 30-day trial” that typically becomes permanent unless you cancel. After the trial period, the fee ranges typically from about $20 a month or about $90 for an annual subscription.
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