How to Interpret FICO Scores

Credit agencies and lending institutions measure your financial health by your FICO score, otherwise known as your credit score. FICO is actually an acronym for the credit score model developed by the Fair Isaac Corporation. Basically your FICO score tells the lender the probability of you paying your bills on time. It is important because it affects your ability to obtain credit as well as the interest rate you will receive on extended credit. This article will describe how to interpret your FICO score.

Instructions

1

Obtain your credit report. Individuals are now able to obtain 1 free credit report every 12 months from each of the three major credit reporting agencies. The three major credit reporting agencies are Equifax, Experian and TransUnion. You can obtain your credit report and credit score for free by visiting the Annual Credit Report website.

2

Understand what makes up your FICO score. Your credit score is calculated on a number of factors with approximate weights given to each as disclosed by the Fair Isaac Corporation. These include late payments, bankruptcies and collections (weighted at 35 percent), current debt (30 percent), how long your accounts have been open and established (15 percent), type of credit such as installment, revolving or finance company (10 percent), and applications for new credit and inquiries (10 percent).

3

Know the credit score range. Credit scores range from a minimum of 300 to a maximum of 850. Different lenders view bad, acceptable and good credit scores differently. For example, an automobile lender may view a 680 credit score good while a mortgage loan lender may view a score of 720 as a good credit score. Generally speaking, a credit score of 650 is considered to be the lowest score required to obtain a fairly good credit rate.

4

Compare your credit score to the range. Higher credit scores result in a lower interest rate or cost of borrowing. The Fair Issac Corporation now discloses their interest rates on a 30-year fixed mortgage, 15-year home equity loan, and a 36-month car loan broken down into FICO score ranges. See the Resources section for the link to this chart of scores and interest rates.