How to Read a FICO Credit Score

When you establish your credit history you are assigned a FICO score or credit score. (FICO stands for Fair Isaac and Company, the company that developed the credit scoring system used by U.S. financial firms.) A FICO score is used by lenders to determine the likelihood that you will default on a loan -- that is, your risk factor. The lower your FICO score, the more risk you pose for a lender. A low FICO score can cause a lender to charge you a higher interest rate for credit cards, mortgages and automobile loans.

Instructions

1

Understand the range for a FICO score. A FICO score can range from 300 to 850. According to myfico.com, scores in the range of 720 to 850 will get you an annual percentage rate of 5.928 percent and a monthly payment of $760, for an auto loan of $25,000, based on a national average. This is the very best rate you can receive. If you look at the lower end of the spectrum a FICO score between 500 and 589 will get you an annual percentage rate of 18.724 percent and a payment of $913 for the same loan amount of $25,000. There is a significant difference and the amount of finance charges you pay will be substantial over the term of the loan. The term for both loans is 36 months. The rates quoted are as of Dec. 1, 2009, and are subject to change.

2

Check the items that are needed to calculate a FICO score. There are several factors that can help determine your credit score. The category that influences your score the most is your payment history, which represents 35 percent of your score. This is why it is important to pay your debts on time. The amount of debts you owe also influences your credit score by 30 percent. If you have too much debt or you use up too much of your available credit, it can affect your score in a negative way. How long you have been in the credit bureau also influences your score by 15 percent and the types of accounts and new credit each influence your score by 10 percent.

3

Review the bad credit items that can lower your credit score. According to creditcards.com, the higher your credit score is the more it is reduced when there is some sort of infraction such as a late payment. A credit score of 680 is reduced anywhere from 60 to 80 points when a payment is 30 days late. If your credit score is 780, a payment that is 30 days late will shave off 90 to 110 points. Maxed-out credit cards also reduce a 680 score by 10 to 30 points, and a score of 780 is reduced by 25 to 45 points.