It’s important to be in a good, no great FICO credit score range. It’s also important to know what your score is.
I used to think otherwise. I never had a credit problem. I never missed a payment. I never even paid a cent in credit card interest. I figured I must be in a great FICO credit score range. Here’s what I found out:
What good is FICO
According to Fair Isaac, the people who created FICO and calculate your FICO score, 90% of the largest banks use your FICO score. Also, the Fair Isaac folks say that “a 100 point difference in your FICO score could mean over $40,000 extra interest payments over the life of a 30-year mortgage on a $300,000 home loan.” Looked at another way, by staying in a great FICO credit score range, you’ll be able to pay off your home mortgage much faster. I like it!
That being said, no matter who you are and where you are financially, it’s critical to know your score and make sure you clean up any credit report errors quickly .
The formula that Fair Isaac uses to calculate your FICO score is kept secret – sort of like the recipe for Coca Cola. It’s common knowledge that the low range of a FICO score is between 300 and 400. The high range is between 800 and 900. However, we do know that the good folks at Fair Isaac look at the following factors in arriving at your score:
- Do you have a good payment history?
- How much of your available credit are you using and how much total debt do you have? (30% weight)
- How long is your credit history? (15% weight)
- Have you applied for credit recently? (10% weight)
- Why types of credit are you using? (undetermined weight)
What is a good FICO Score
720 or better is good. But keep in mind that even someone with this score could be turned down for a loan or get a higher rate from one bank than another bank. That’s because each institution interprets the score (and your circumstances) differently.
- How long have you been at your current job?
- How long have you lived in your home?
These and other factors come into play in determining what rate you’ll pay for credit. Your credit score isn’t so much about you. It’s more about how safe the bank feels their investment in you is at this time. Fair Isaac says the Median FICO Score in the US is 723. That means if you want great credit terms, shoot for a rate that’s higher than 723.
Neal’s Note: Make sure to check your spouse. If he or she has a credit problem, you need to know about it before it sinks your score and the relationship.
What does the FICO score mean
The FICO score estimates the probability that you’ll be late in a payment for 90 days or longer over the next two years.
PERCENTILE (%) OF PEOPLE SCORING AT THE DELINQUENCY RATE