Wealth! Host Brad Smith breaks down what you need to know about FICO scores, including what constitutes a good credit score, risks assumed in calculating one's credit score, and how to boost your credit score.
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This post was written by Naomi Buchanan.
The average US FICO score holding steady at 717. That's just a point lower compared to last year. But let's back it up here. What is a FICO score? It's created by the Fair Isaac Corporation and it's a three-digit number based on the information in your credit reports and it helps lenders understand your credit risk, AKA, how likely you are to pay back a loan. The score is weighted using five different components here. It's calculated using payment history, accounts owed, credit history, new credit, and credit mix. And that's from FICO. Now, all of this contributes to the score. The scores range from 300 to as high as 850. And the higher the number, yeah, you guessed it, the better the score. And the better the score, the more likely you are to get financing at a good interest rate on say, a car or a mortgage. Even some landlords require your credit score before they can determine your deposit or even accept you as a tenant. But if your score is, let's just say, less than exceptional, there are ways you can bring it up. Like paying bills on time, using less than 30% of available credit, and having a variety of credit types. And FICO isn't the only credit scoring model. There are a couple others, but FICO is the most widely used. You can find out your score through the company's website or even check your banking app. Many of them give out free FICO scores monthly.