Your Fair Isaac Corporation, or FICO, score is a number that measures whether you're worthy of credit. The score ranges from 300 to 850 and is determined by a statistical analysis of your credit report. Your payment history, debt ratio and number of accounts open and closed all factor into the final number. A high number means that more credit options including better interest rates, loans and credit cards are available to you. A lower number indicates that you have a poor credit history and will likely not be able to get the best interest rates on loans. Fortunately, there are many ways to improve your score, and it usually does not take a long time to do so.
Payment History
Your payment history accounts for 35 percent of your FICO score. This includes payments made not just to credit card and loan accounts, but also utility bills and other installment payments. Any adverse items like accounts that have gone to collections or past due items, even if it was just once, will affect your score. The score does, however, take into account how quickly an adverse item is paid and whether a past due on an electric bill, for example, is an isolated incident or a regular occurrence.
Debt Amount
The FICO score also weighs how much you have outstanding overall. This counts for 30 percent of your overall score. The number of accounts you have open, particularly revolving accounts, how large a balance you have and how often you pay off the whole amount all figure into that 30 percent. The amount of time you've had accounts open and how often you use them is also important. Inquiries into your credit also can count against your FICO score.
Employment and Loan Approval
Your FICO score can affect whether or not you are hired for a job or approved for a loan. Employers often look at the FICO scores and credit reports of potential employees. This is particularly important if the potential employee is going to be in a position of trust or authority. For example, the credit score of a person who will be caring for small children or the elderly might be important since the person will need to be responsible. A solid payment history would show a person's ability to take care of various responsibilities. A person being considered for a bookkeeping position might also need to submit his FICO score, since a bookkeeper should understand how to make payments on time. A banker will also look at a person's FICO score before approving a loan. A lower score doesn't always mean a denial, however. A banker will look at a person's employment and other factors before making the final decision.
Score Improvement
One of the best ways to start improving your credit score is to pay all of your bills on time. Repeated delinquent payments, even by only a few days, can affect your FICO score by a lot. Reducing your debt will also improve your score. Do this by eliminating the use of credit cards instead of simply moving the balance around to cards with low interest rates. Pay them off and then don't use them any more. The fewer accounts you have, the easier it will be to pay them all on time, and the better your score will be overall. Check your credit report regularly to see what you look like on paper. If you don't agree with an amount owed, contact that creditor. If you don't have enough money to pay off certain accounts, try to make payment arrangements directly; this will look much better than avoiding the bill all together.
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