What is a FICO Score and How Does FICO Work?

Simply put, a FICO score is a measure of your credit worthiness based on a series of criteria applied to the existing credit accounts you have had over your lifetime. The name FICO is an acronym for a company that has been helping businesses determine customer credit evaluations for over 35 years, Fair Isaac Corporation. All FICO scores range from a low of 300 to a high of 850. The higher your number, the better your score.

What Are The Most Important Factors Determining Your Credit/FICO Score?

The mathematical formula used to derive credit scores is quite complex and is a trade secret- only Fair Isaac knows exactly how the formula works. Regardless, there are a number of published factors which can have a significant impact on your credit score. The important credit score factors include:

  • History of Late or Missed Payments on Credit Cards and Loans: the later you are on your payments (30, 60, 90 or 120+ days past due) the lower your score will be. Keep in mind that the more recent the missed or late payment will count more against your score versus a payment missed a year ago, for example.


  • High Use of Revolving Credit: in simple terms, maxing out your credit card to the point where there is no credit available is an indication that you cannot handle your debt responsibly. The fix is to pay down at least a portion of your credit card so your percentage of available credit increases.


  • Length of Credit History: the longer history of established credit, the higher your score will be. The credit bureaus place consumers in brackets based on the length of their credit history, so different principles may apply differently to different groups. The bottom line is that a long credit history is a good thing.


  • Too Many Credit Inquiries: if you've applied for a credit card 6 times over the past 6 months, for example, it leads the credit monitors to believe that you are having trouble being approved for credit, which can lower your score.


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