It is never good to assume that one knows the terminology and meanings behind the credit scoring system or FICO and the ratings that are contained therein. So a review will be helpful to many. Simply put, the credit score or rating supplies the financial world a composite look at your payment history and applies a score based on how you perform. This allows them to make a determination of how good of a credit risk you are when it comes to loaning you money.

If you have a low score (lower is not good), then you will pay a higher interest rate and your credit might come with certain restrictions. If your score is high, then you benefit from lower interest rates and a wider acceptance by credit card companies in particular.
This scoring system is also referred to as the FICO system, which stands for Fair Isaac Corporation. They came up with the standardized scoring system from which your score is computed. This score is intended to be completely unbiased and reliable with no discriminatory rankings. The companies that look at your score get a ‘snap shot’ of your credit history which measures up to that of other people.
Monitor Your FICO® Score & Equifax Credit Report
The low score is 300 and the high is 850. The higher score not only gets you lower rates and benefits, it also provides you with a greater degree of financial flexibility while it saves you money in the long term. Nowhere is this more evident than on a mortgage. A difference of just one percentage point on your mortgage can save you thousands of dollars over the life of the loan.
There are five categories that are weighed in determining your score:
1. Payment history. This comprises 35% of the score. On-time payments increase your score and late payments lower it.
2. Current Balances. All of your current balances owed makes up 30% of your score. This comes from any kind of consumer loans that you may have – credit cards, auto loans, mortgages and other personal secured and unsecured loans.
3. Credit History Duration. This makes up 15% of your score and is based on how long you have had any kind of specific credit account, and how long it has been opened and when the last time was you accessed these accounts.
4. New Credit Requests. If you are attempting to get new credit, this makes up 10% of your score.
5. Credit Diversity. This final category is 10% of your score and is based on a composite of all of your types of credit to which you have access. It is not as important unless your other categories of credit information is lacking in specifics.
The credit score is a cruel master. It holds sway over your ability to finance your life. But make no mistake; there are some who avoid the effects, ill or otherwise, of their score because they are wealthy enough to live an all-cash lifestyle. These are fewer in number than those in the middle and lower class who live and die by this system.
What a FICO a Score is Not
A credit score is not a determination of your social status. It might determine what you are able to afford from a financing standpoint, but socially, you are judged by other criteria. You can still have a strong standing in your community no matter what your score. Others might question that statement given that some employers require a credit check before hiring. But, by and large it is a private system not available to the general public. Make sure you keep the above in mind when you go to apply for credit. It will help you understand the system more clearly.
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