A FICO score is a branded version of your credit score named after Fair Isaac Corporation.
FICO scores are essential to every American consumers since they are widely used by largest banks and are popular among creditors when making loan approval decisions.
You may often hear the terms credit report and credit score interchanged even though there's a significant difference between these two.
A credit report is a detailed history of one's credit information while a credit score is a three-digit number calculated based on the details contained in your credit report.
The higher the score the better.
There are three major credit reporting bureaus that keep track of your accounts, both past and existing financial accounts.
Computing your FICO score is based on percentages.
The reporting bureaus use the following breakdown when computing a score within the range of 300 to 800: Payment history- 35% Total amount of debt- 30% The length of time you have been a borrower- 15% The amount of new credit you have accumulated- 10% The type of credit you mainly use- 10% The breakdown simply shows that how you pay your bills is a significant part of computing your FICO score.
This explains why delaying or defaulting on your payments can negatively impact your score.
Never underestimate the importance of your credit score in your personal finance.
Check your credit report regularly.
It is advisable to keep track of your scores once every quarter to avoid cases of identity theft and other fraudulent activities.