According to the Huffington Post, nearly half of Americans do not know their FICO scores!
What is a FICO score and why is it so important?
Quite simply, your FICO score is just a number that ranges from 250-900. So what’s the big deal you ask? It is the most important number of your financial life and your financial success. Your FICO score can make or break you. Generally, people with a low FICO score are knee deep in debt, constantly being harassed by collectors and struggling to break even. If your FICO score is low, your one and only goal in life should be to work on increasing it. If you have a good FICO score (congratulations!), your goal should be to maintain it and then work on possibly increasing it.
Who uses my FICO score?
It all starts with these people called lenders. Lenders are the people who give you money (also called credit) when you need it for an investment such a house, car or education. Since they are loaning you this credit, they expect it to be paid back to them (with interest of course). The catch is that these lenders need some kind of way of gauging how much they can trust you.
That is where your FICO score comes in, and it’s pretty simple. If the lender see’s that you have a low FICO score, they may not take the risk in letting you borrow their money. And if they do loan you money, they will charge you a very high interest rate. Vice versa, if you have a high FICO score, lenders will not have a problem giving you a loan with a fair interest rate.
So how is this number calculated?
Your FICO score is calculated based on five categories and they are:
- Payment history (35%)
- Outstanding balance (30%)
- Credit history Length (15%)
- New Credit (10%)
- Types of Credit (10%)
How do I get my FICO score?
By this point, you should be ready to jump out of your shoes because you have that urge to know what your FICO score is. Good job! So, there’s a few ways to get this number you so desperately desire:
- You can visit www.Myfico.com and apply for it (unfortunately it is not free)
- You can get it from a lender. This is how I first got my FICO score. When I bought my first car (a Honda Accord for all you curious people), the salesman returned back with my printed credit report, which contained my FICO score.
Disclaimer: There is much more to credit scores and reports as one can imagine, however, my goal here is to explain the basics so that you guys can hit the ground running.