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What a FICO Score Contains

Back in the 1950s when lending organizations needed a way to rate potential clients, they wanted an easy-to-understand number that would let them compare the client with other consumers. This helped businesses avoid the time-consuming and tedious task of wading through someone’s entire credit history and interpreting the results.

Along came the Fair Isaac Corporation, an analysis and statistical corporation. Fair Isaac developed a mathematical equation that reviewed a consumer’s entire credit background, including:

• Account inventory. How many accounts you have opened and what type of accounts they are.
• Payment background. This considers how well you do at paying your accounts on time. Missed or late payments reflect negatively on the report.
• Total owed. Are most of your accounts maxed out or do you owe a small percentage of your available credit?
• Credit history. How long have you had credit accounts and loans? Someone with a long history of credit will be a lower risk than a consumer who just opened their first account.

What’s a Good FICO score?

Your FICO score usually ranges anywhere from 620-850. The higher the number, the better your chances are of getting a lower mortgage rate or interest rate on your credit card offers. For example, someone with a credit rating of 750 may be able to secure a mortgage rate of 6.2 percent, while someone with a rating of 620 may only get 7.6 percent. This small difference in percentage rate can make a big difference over the life of your loan.

The average FICO score for American consumers is around 650. Anything higher than that puts you in a good group since you are considered a lower risk than many other consumers.

Want a Free FICO Report?

When you start looking for your score, you’ll find a lot of companies that offer a free FICO report. But, like the saying goes, let the buyer beware, because in most cases you will still be buying something. Unfortunately, many free FICO offers require you to make other purchases.

Additionally, a lot of credit monitoring services will send you your FICO score for free, but you have to sign up for their service, which usually requires a monthly fee around $15. You can cancel this service, but some consumers report having difficulty with the cancellation process. Phone calls go unanswered and e-mails bounce back, causing the consumer to keep the service longer than anticipated, getting charged all the while.

Buying a FICO

You can buy your score for as little as $15.95, which makes this a safer and cheaper deal than most free FICO offers. The MyFICO Web site has several different options available, some which include credit monitoring for around $8.95 a month. For $49.95, you can even purchase a program that will give you tips on how to improve your credit rating and get out of debt.

When you purchase your FICO, you will also get a credit report from at least one of the credit reporting companies. This provides a detailed look at your credit history and lets you see the information that was used to determine the score. This is a great opportunity to review your history and look for any errors that could be affecting your score. If you find any mistakes or see signs of identity theft, you can take steps to get it fixed before a potential lender sees it.

A Free FICO Estimate

If you’re not ready to pay for a report yet or you just want a general idea of where you stand, you can use My FICO’s free estimator. Just by answering some general questions about your credit history, you will get an estimated range of where your FICO score lies. But be honest, you’ll only cheat yourself if you fudge the info to get a better estimate.

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