FICA credit score is a 3-digit numerical index which represents an estimate of an individual’s financial credit worthiness.
Creditors or lenders, such as banks and credit card companies, primarily use FICA credit scores to determine credit limits and interest rates every time when you apply for new credit card, mortgage, auto loan, personal credit line or any other credit issues by the bank.
You Can’t Get a Loan Today Without a Credit Score
FICA credit score ranges between 300 to 850. The higher is your FICA score is, the lower the risk is to the lenders and the easier you’ll obtain a loan, so to speak. A low score, such as 500, could result in much higher interest rates or having your application rejected outright. Conversely, those with a credit score of 760 – 850 would get the most favorable interest rates.
(See credit score scale).
If your credit score is on the low side, loans can be tough to obtain and can cost you thousands of dollars more than they would if you had a decent score. According to Providian Financial executive J. Christopher Lewis, consumers could save $16 billion just on credit card finance charges if they raised their average score by 30 points.
In general, your FICA credit score represents the likelihood that you’ll pay your debts or default on your loan. A low FICA credit score means banks and other financial institutions may deny credit, charge higher interest rates, demand more collateral, or require extensive income and asset verification.
As such, every credit and lending decisions are based on an individual’s FICA credit score.
What’s In Your FICA Credit Score?
Your FICA credit score is one of the most important factors to evaluate how much risk you are as a borrower.
A credit score can be broken down into 5 components, some carry more weight than the others.
- Payment History – 35%
- Total Amounts Owed – 30%
- Length of Credit History – 15%
- New Credit – 10%
- Type of Credit in Use – 10%
Since the bulk of your credit score comes from your payment history and the amount you owe, it’s important to keep a healthy balance and ensure that you always make your payment on time.
Ways to Improve Your FICA Credit Score
Understanding your credit score and taking the right steps to get your FICA score in the higher ranges are vital to your overall financial health.
Here’s a list of ways to improve your credit score
- Always pay your bills on time
- Keep your balance low in relation to your available credit – 35% or lower is ideal.
- Make more than the minimum payment
- Pay off credit card debt rather than moving it around to other cards
- Don’t open a lot of new accounts over a short period of time, especially if you have a short credit history
Keep in mind that your FICA credit score can change from time to time, therefore it’s recommended that you check your scores and credit reports regularly – at least once a year, and take proactive steps to improve your credit scores – whenever possible.
Update: Although by law, you’re entitled to receive a free copy of your credit report annually from any of the 3 credit bureaus – Equifax, Experian, and TransUnion, this free report will not reveal your actual credit score.
To view the actual score that the lenders are seeing, get your score (plus 3 in 1 credit report) from Free Score Finder and know know where your credit score stand.