Why do FICO scores matter so much?

Developed by Fair Isaac & Company, the credit score (often referred to as the FICO score) is a measure of your credit worthiness. The higher your credit score means the more credit worthy you are considered to be.

The credit score reflects your credit history. Factors that go into determining your credit score include: past delinquency, past use of credit, age of credit file, number of credit applications, mix of credit, etc. Through a variety of formulas, the three major credit bureaus assign points and values to the items in your credit file. When everything has been computed, the resulting number is your credit score.

Generally, credit scores range from 350 to 850.

The credit score is a major consideration to most lenders when deciding whether to make you a loan. A high score showing good history indicates someone who is likely to pay back a loan and make loan payments on time. In other words, if you have a high score you are a good credit risk and a desirable loan applicant, and you are likely to have your loan approved.

Besides being well on the way to speedy loan approval, if you have a high credit score, you are also in the position to take advantage of lower interest rates and more favorable terms. If you are thinking of buying a house or a car, lower interest rates can translate into thousands of dollars of the course of the loan's term.

In addition to lenders, many landlords and employers are also requesting credit reports in their application processes. It is a good idea to check your credit reports periodically, both for inaccuracies and to have an idea what to expect when you apply for a loan or any other transaction, which may require a credit score.

The average credit score is 675. Do you know yours?
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