Having a FICO score and knowing what it is is essential to managing your finances. The is the number that every credit bureau will use to determine if you have good or bad credit and they will assign you a credit score. The system used to find this number is very in depth and can be quite confusing but if you know how it all works, it can also be used very much to your advantage. Knowing how the FICO system works is the key to keeping you credit above par.

The first thing you need to know is the basics of how the FICO system works and what qualifies you for good or bad credit. The highest score you can get in 850. This should be common knowledge but I have been surprised time and time again at the number of people that don’t know this basic thing. If you did not know, don’t worry. After today, you’ll know a lot more than most. The ideal range for your credit score is 720 to 850. This is extremely good. Again, don’t worry if this isn’t you. If you score is about 675, you are still in very good shape. If it’s below 675, there may be some trouble borrowing money in the future. 300 is the lowest.

This FICO score is compiled by many different factors. 35% of your credit has to do with your punctuality of making your payments. Any payment that is more than 30 days late is reported to the credit bureaus and a lower score is the result. 30% of the FICO score is dependent upon your total debt. This means the ratio of your revolving debt. Still confused? Revolving debt is a credit card. Debt that is always available in a certain range. The ratio is how much debt you still have in comparison to the limit on that line of credit.

Another fifteen percent of your credit score is based on the length of your credit history from the time you first borrowed money to the present. Ten percent is based on the kinds of credit you use. Some kinds are weighted more heavily. The final ten percent of your FICO score is determined by how much credit you have used recently.

There are also a couple of unique things that can affect you credit score such as how much money you owe to a court judgement or money you owe on a tax lien. These have much larger penalties, as does any kind of bankruptcy as you could imagine. The number of accounts you have open also affects your score even though it may improve the debt/credit ratio. Each time you make an inquiry on your credit, it also affects your score. Some pulls hurt more than other though. For example, if you are checking your personal credit, this is considered a soft pull and won’t really affect your score.

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