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These days your credit score is very important and we all know that when it comes to out finances. The FICO score has appeared in the 1980’s and it comes to help some companies to know the credit risk of a certain person based on her credit history. Fico name comes from Fair Isaac and Co, company qhich has developed a special software do calculate the credit risk. The FICO score can range from 300 to 850.

Credit Score vs. Credit Report
A credit score is totally different from a credit report and this is because your credit score depends on your credit report. The credit report contains your credit history with informations like:

  • Current credit accounts

  • Payment history

  • Credit utilization

  • Credit inquiries

  • Bankruptcy

Usually your credit report will cointain your credit history for the last 7 years but in the same time if you Have a bankruptcy it will stay in your credit history for up to 10 years. It is advisable that you require a free credit report each year so you can make sure that everything is fine.
The FICO score is not a part of your credit report even if generally is based on your credit history and the credit bureaus will always calculate your FICO score based on what they have on file from your credit hostory. As you can see this means that you can have up to 3 FICO scores which are totally different in the same time.

Credit Score – How is Calculated?
When calculating your credit score some parts of your credit history are more important than others and they will have a bigger influence on your overall score.
The FICO score contains:

  • Payment History – 35%

  • Total Amounts Owed – 30%

  • Length of Credit History – 15%

  • New Credit – 10%

  • Type of Credit in Use – 10%

From here you can see that having a good payment history and no debt can heavily improve your FICO score.

Why FICO score is so important?
Your FICO credit score is important because it will be there for your entire life and everytime you want to borrow some money, look for a mortgage, buy a car those companies will first look at your FICO score and then decide if they can help you our not.
When borrowing some money your FICO score will also be an important factor on how much you can borrow and how much you need to pay in return. This is because if you have a good credit score you don’t present a huge risk and you can receive very low interest rates.
This can be very tricky because if you credit score is not good and the interest rates will be high then you’ll pay a lot just on those fees.

Improve your credit score
If you already have a low credit score you don’t need to worry because you can improve it in time. The update for your credit score is made every month so any improvments made this month will have a positive result next month. The only bad thing is that all the info will be keeped in your credit history for 7 years.
Most important things to be done to improve your credit score:

  • Make all the payments on time

  • Reduce your debt