A FICO Score is a numerical value assigned to a person that measures their creditworthiness.  The score is calculated on a number of factors and is used by banks, credit card companies, and other lenders to determine whether to lend money or not, how much to lend, and at what interest rate.

FICO Scores generally range between 300 and 850.  

A score of 300-579 is considered poor, 580-669 is fair, 670-739 is good, 740-799 is very good, and 800-850 is exceptional.

There are five primary factors that determine a FICO score:

1. 1. Payment History (35% of the score)

This is something to pay close attention to.  Payment history is an index of how reliable you are in meeting your financial obligations.  Do you pay on time?  Do you pay more than the minimum?  Do you pay in full when possible?  If you are going to unavoidably be late in paying, do you communicate with the creditor in advance of the delay?

1. 2. Credit Utilization (30% of the score)

This is a measure of how much credit you have available compared to how much of your available credit you have used.  Do you have some headroom on your credit cards and lines or credit, or are you maxed?  

Your FICO score will increase when your credit card balances are under 50% of the limit, get a significant boost when the balances are under 30% of the limit, and a small increase when you’re under 10% of the limit.

1. 3. Length of Time the Account has been Open (15% of the score)

Age and long-term accounts show stability.  This is one of many very good reasons not close accounts that have been paid off.  

1. 4. Types of Credit (10% of the score)

There are three (3) basic different types of credit.  There is revolving credit where the lender sets a limit to the amount of money available to you and as you pay down the balance, the amount of available increases.  Common examples are credit and department store cards (MasterCard, VISA, Discover, Macy’s, etc.) and bank lines of credit.

Installment credit is for a set amount of money borrowed that is paid back in set monthly payments over a specific period of time, such as a mortgage, car or student loans (24 months, 36 months 48 months, 30 years, etc.). Bankers call this “closed credit”. 

Open credit is not as common.  With open credit, there is a maximum amount you can borrow but, unlike revolving credit, the balance must be paid-in-full each month. The most common PIF accounts are utility bills (like water, gas, electric and phone bills), 

1. 5. New Credit (10% of the score)

New credit is when you open a new credit card or similar borrowing account, and factors such as an inquiry and newly opened account.

There are also sub-categories that can negatively influence your score such as an excessive number of inquiries and spending binges.

On average, your FICO score will typically increase 1-2 points a month, assuming nothing has changed, that there is no new negative information being reported, that you haven’t missed payments, or added additional debt.

Some of the things that will drive your score down are missing payments (even small ones), going over your credit card limit, forgetting to pay a utility bill, adding a collection account, paying less than the minimum, being a co-signer or guarantor on a loan.

Opening a new borrowing account will also bring your score down, at least initially, because you now have a “new” account with no payment history, and the potential for increased debt.  

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