shutterstock_130347173Whether its buying a home, car or just opening a bank account, in today’s world credit is needed for virtually everything. But what is credit exactly?  Credit is what financial experts refer to when it comes to a personals financial prospects, and is often determined by a number know as a credit score. There are several companies that calculate credit scores, the most popular being FICO®. FICO® scores are used by the three major credit bureaus.

What is a good FICO® credit score?

FICO® scores consist of a range between 301 and 850 points, with 301 being the absolute worst credit score you could have and 850 being the absolute best. The better your credit score is, the more likely you are to qualify for high lines of credit – and the better your interest rates and fees will be. The following is a more accurate breakdown of that range:

  • A FICO® score of 600 is bad.
  • A FICO® score between 600 and 649 is poor.
  • A FICO® score between 650 and 699 is fair.
  • A FICO® score between 700 and 749 is good.
  • A FICO® score of 750 and above is excellent.

How is your FICO ® score calculated?

FICO® takes into account a number of different factors in order to determine your final credit score. This credit score can improve or worsen over time depending on your current financial standing and actions. The following are the five main categories that factor into your FICO® score and how they are weighed:

  • Amounts owed – 30 percent
  • Payment history – 35 percent
  • New credit – 10 percent
  • Length of credit history – 15 percent
  • Credit mix – 10 percent

Keep in mind that these are the factors used for the general population. For those people that don’t have a very long credit history, the weight at which these factors are weighed may be different.

How to improve your FICO ® score

If you have a low FICO ® score, then you can work to improve it. The following are a few things that you can do to improve your FICO® score:

  • Pay your bills in full and on time – Late payments or non-payments will hurt your score.
  • Pay down your credit cards – A high credit utilization ratio will hurt your score. Your balance should be 30 percent of your available credit or less to have a good impact on your score.
  • Check your credit report for errors – There may be mistakes on your credit report. Check your credit report carefully and dispute any errors that you come across.
  • Avoid closing paid off cards – When you close a paid off credit card, the amount of credit you have declines while your balance remains the same, causing your credit utilization ratio to skyrocket.

In order to improve your score it is important to understand how your FICO® score works. For additional advice on how you can improve your FICO® credit score, be sure to contact us at BoostMyScore today.