In the United States, your FICO score is very important when you request a loan because it reflects your financial responsibility. FICO is not only used when you want to purchase a home or a car, but also when you apply for employment.

FICO is a credit score report that is based on certain factors established by the Fair Isaac Corporation, the company that developed the credit report model in 1989; it is used by the three major credit bureaus: Equifax, Trans Union, and Experian. These companies generate your credit score based on certain details including the dates your credit accounts were opened, the amount of money loaned to you, third-party analysis of your credit report, late payment history, possible bankruptcy, etc. This way they are able to predict your credit behavior in the future.

Understanding FICO
FICO ranges from 300 to 850 points. The higher your score, the higher your chances are of obtaining better loan terms. Generally, if your FICO is higher than 720 it means that your credit history is excellent; if it ranges from 620 to 650 then your credit history is good, although some loaners see it as questionable. Lastly, if your score is under 620 then your credit is considered subprime or poor.

Your creditor can provide you information about the criteria used by financial entities. Also, keep in mind that your credit score is not the only factor taken into account when you request a loan. Other factors such as savings, employment stability, debts, income, and guarantors also count towards your loan application.

1. Payment history: approximately 35% of the score is based on this information. It includes any late monthly payments, collection accounts, or bankruptcy files. Keep in mind that your credit is affected by any late payments. A recent late payment is worse than an older one.
2. Accumulated debts: reflects any credit card debt and provides 30% of the score. This aspect also reflects how much an individual uses his/her credit. The more an individual uses a credit score (usually credit cards), the less likely this person will pay the debt and comply with payments.
3. Years with established credit: a credit established for many years increases your FICO score. Although in some cases individuals with newly established credit may have high FICO scores. Agencies analyze the average amount of time with credit accounts, the length of time of established accounts, and the last time the accounts were used. This makes up 15% of the total score.
4. New credit applications: although only 10% of the score is based on this factor, it is not recommended to open various credit accounts at one time, since it will label your credit as questionable.
5. Types of credit: represents 10% of the total score. This section takes into account the existing proportion between your debts and the credit cards you possess, as well as the loans that you may have with other organizations. Although this category does not contribute much to the entire FICO score, it is important if there is no other information to be based on.

How to Improve Your FICO

• Pay your debts on time, since payment history forms 35% of the score.
• Don’t use more than your credit card allows, since credit card debt forms 30% of the score.
• Try not to cancel your credit cards, since maintaining your accounts will improve your score. This represents 15% of the score.
• Don’t apply for new credit accounts, it can lower your score.
• Pay outstanding debts and any other debts.
• Check your credit report and correct any mistakes.

Race, religion, sex, marital status, age, and country of origin are not taken into account in the development of a credit report.