What is a FICO Score?

Have you ever tried to get a loan, buy a car, get a job or rent an apartment? If the answer to that is yes you're probably already familiar with your FICO score. It's the three digit number that credit reporting agencies use to rate your credit and, by default, tell lenders, employers and landlords how reliable a risk you really are.

No, it's not fair, but there you have it. Your worth as a person has been reduced to a number. (You knew the day would come when we would all just become numbers in the system, but you probably had no idea that that day was coming so soon!) Your FICO score is going to play a big role in your future, so it's important that you take care of it.

What is FICO?

FICO, an acronym for Fair Isaac Co., is a balance of all of the factors that make up your credit score. Before you can start understanding how they figure out your FICO you have to first understand what goes into it. When credit reporting agencies like Experian, TransUnion and/or Equifax calculate your credit score they look at:

1) Your bill paying history. A single late payment (late being 30 days or more) on your credit card is going to have a bad affect on your FICO score. So are unpaid medical bills, unpaid invoices and any other outstanding bill that's been reported to a collections agency. That why the single most important thing you can do to keep your FICO healthy and ensure that you never have trouble getting the credit you need is to keep your bills current, and make payment plans for those you know you're not going to be able to pay by their payment due date.

2) Your credit history. How much credit do you have? People with little to no credit are going to have as hard a time, if not harder, obtaining credit as a person with bad credit. It's reached the point where, if you prefer to pay for things with cash and you choose not to have a credit card, you're almost punished in terms of a notably lowered FICO.

3) Your debt. Believe it or not, credit reporting agencies do put a limit on how much debt they want you to have. They want you to be in just enough debt to have to make monthly payments, but not enough that you're going to be struggling if you decide to take on several thousands of dollars more. Yes, it's bizarre. It's much better for everyone if you just go with it.

Believe it or not, your job, where you live and who you are as a person has absolutely nothing to do with your FICO score. Your FICO score is all about how you manage your finances, how you've managed them in the past and, by default, how a lender can expect you to manage them in the future.

The actual process that credit reporting agencies use to calculate your credit score involves the use of an algorithm that probably couldn't be understood by Einstein, so don't worry too much about it! Just try to keep your credit as clean as possible and you'll be able to enjoy an unbelievable number of benefits.