Fair, Isaac & Company (FICO) gathers and compiles the data in the credit reports, and subsequently calculates a numeric score to determine your creditworthiness. These numeric rankings are known as your credit score ratings.

The majority of consumer credit companies and mortgage lenders use the FICO scores. You can visit www.myfico.com to obtain information about your FICO score. Sometimes those scores will be provided on the credit score report.

The higher the score on the credit score scale, the better – which means you’ll be able to save money whenever you apply for a loan or mortgage. This is because you will be offered not just lower interest rates, but also more favorable payment terms if you have a higher rating. The lower your credit score, the higher interest rates you will be charged on a loan. The difference between an excellent credit score and low score can translate into hundreds or even thousands of dollars. The score also determines whether you will even be offered a loan.

Credit Score Chart

The following chart is intended to help you understand how the credit score is calculated:

Credit Score Chart

35% – Payment history has the biggest influence on your credit score. It takes into account if you are on time with your bills, any bankruptcy history or bills in collection.

30% – Your Total Amount of Debt. Your debt to income ratio is taken into account. If it’s too high, the score is lower. Amount owing on specific types of accounts. Number of accounts with balances. Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts). Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans).

15% – Length of your credit history. If your accounts are all very new, it’s a minus.

10% – Recent credit inquiries. If you have many recent new inquiries, your score will go down.

10% – Types of Accounts you have. If you borrow from finance companies or pay day advance companies, the score goes down.

In our credit-driven society, credit scores are becoming a critical part of our daily lives – whenever you are buying a house, a car, or even going to college, oftentimes you cannot afford to do it using just the money you have in the bank. And they’ll become even more important in the future.

That is why you should make sure to review them on an annual basis, and make sure they provide as positive view of us as possible.

Read more on MyCreditScoreScale.com Blog.