The Anatomy of a FICO Score

FICO Scoring and You

Considering how important one's FICO score is to modern day life, it's quite surprising how little people know about what actually makes up this all-important number. We'll take a look at what goes into these scores as well as an example of savings that can be had by scoring high.

Firstly, the FICO score ranges from 300 to 850. The higher the score the better your credit worthiness is consider to be by potential lenders. While it is not uncommon for consumers to score above 800 it is highly unlikely someone would actually score in the 300's. A score in the 500's is considered to be very poor, typically indicating a bankruptcy or other very serious credit maladies.

Five components Which Go Into the FICO Score

  • Payment History makes up 35% of the score

    • It's not surprising that the factor which has the greatest influence on your score is your payment history. The previous seven years are taken into account with a slightly greater influence granted to more recent items. The skewing towards your most recent history helps in the credit repair process.

  • Amount owed makes up 30% of the score

    • Most consumers are not aware of how much this factor influences the FICO score. It, in fact, weighs almost as heavily as Payment History. No effective credit repair strategy can fail to include a reduction in the amount of debt carried.

  • Length of credit history makes up 15% of the score

    • This is the average length of time that all of your accounts have been in place. Lengthier account histories will have a greater positive effect than shorter ones. One hidden effect of bankruptcy is that, typically, most or all of previously held accounts are terminated which will greatly reduce the average age of the accounts.

  • New Credit makes up 10% of the score

    • words

  • Types of credit used makes up 10% of the score

    • words

    What is not in your score

    Your race, religion, sex, marital status, age, salary, location of primary residence, child and/or family support or rental payments. It is expressly forbidden by federal law for any of these factors to be taken into account when assessing an individual's application for credit.

    Not Just One Score

    You actually have three FICO scores, one for each of the credit reporting bureaus: Experian, Equifax and Trans Union. These three scores will vary, although not greatly, depending on what information each of the bureaus have on file on you.

    Creditors rely on your FICO scores in determining whether or not to extend credit, how much to lend, the interest rate to charge, and repayment terms. All told a high FICO score will translate into considerable savings depending on the loan and terms.

    How a Good FICO Score Saves You Money

    Using typical rates a consumer with a FICO score of 760 or more would qualify for a 6.36% with a monthly payment of $1,345 per month on a $200,000 fixed rate loan. While someone with a score of 640 or below would pay an interest rate of 7.95% making their monthly payment $1,577 on that same $200,000 loan. That's a difference of $232 per month and $2,784 over the course of a year.