FICO Score - Managing Your FICO Credit Score

There is so much emphasis on the Fair Isaac Corporation or FICO score that people worry about what their score is but they don't know much about what it means. The easy answer is that if your FICO credit score is really low banks may consider you to be a high-risk client and be reluctant to lend you money. Or if they do lend you money, your interest rate may be increased to offset their risk factor.

Similarly, if your credit score is really high, the bank already knows you have a great history of paying your bills on time and managing your credit responsibly so you're likely to be offered much lower interest charges as they consider you a low risk client.

For the above reasons, understanding the FICO scoring system is the key to maintaining a good credit rating and improving a bad one. If you know how your score is calculated you can simulate actions that will positively affect your score and then use them for credit repair purposes.

FICO Credit Score Scale and Important Score Ranges

The range of FICO credit score scale is anywhere between 300 and 850. Below is a list of the ranges to help you understand how banks determine your risk levels as well as credit terms:

720 - 850 - Excellent Score. Banks will offer you the best possible terms and charges they can find.

700 - 719 - Very good Score. Creditors may consider offering you favorable credit terms.

675 - 699 - Average Score. Lenders consider you within the average range, so you'll qualify for most loans.

620 - 675 - Sub-Prime Score. Although you will still qualify for loans, you may be charged higher interest rates

560 - 619 - High Risk Score. Banks consider you a bad credit risk and will be wary of offering you further loans unless you can verify you'll improve on your past poor history

500 - 559 - Extreme Risk Score. You need to do some serious repair work on your credit score today

Now you know the ranges used by banks to determine your personal risk category, did you know the average American FICO score is 692?

5 Elements That Made Up Your FICO Score

The three major Credit Reporting Agencies -- TransUnion, Equifax and Experian -- collect and collate information about your credit history and use it to calculate your FICO score. They then report this score to any lender making an enquiry about your history.

Here are 5 elements of a credit score that made up your FICO credit score:

35% of your score is made up from your repayment history. If you have a history of being late paying bills or making loan repayments, you can be sure this behavior has been reported. In order to increase your score in this category, make sure all your bills are paid on or before the due date and this positive action will also be reported.

30% of your score comes from balances on your current accounts. This means making sure you pay off your credit card balances to a zero balance every month and making sure your personal loan or mortgage balances are reducing steadily against the original amount you borrowed.

Unfortunately there are some unscrupulous lending marketers around making sure people believe that by raising your credit limit you may also increase your credit score as your account is no longer at its limit. This is irresponsible marketing because it's much safer for you -- and your credit score -- to simply reduce the amount you owe against your credit limits.

15% of your score comes from the average length of time you've had available credit. It's highly unfortunate that this is such a high scoring factor, as it seems to encourage people to stay in debt longer than they really need to. However, it's also a sign to the banks that people, who have gone on a 'credit binge', applying for multiple credit cards and loans in recent months, may be in some kind of financial trouble.

10% of your score comes from the types of credit you've applied for. Ideally, the Credit Reporting Bureaus reward customers who have a mixture of mortgages, personal loans, credit cards and store cards. Once again, it's unfortunate that people are rewarded so well for having too much debt, but you can improve your score by maintaining a good repayment history and good conduct on the credit you already have.

10% of your score comes from the amount of times you apply for credit.
Every time you make a credit application, the inquiry is listed on your report. The more inquiries showing on your report, the lower your score, so be wary about making too many inquiries.

Now you know how your credit score is determined. You can now use an online FICO score simulator -- a calculator that determines how certain actions will affect your credit score - as a roadmap to maintaining or improving your credit score.

Get more information about how your FICO score can save you thousand of dollars, plus learn why you should only get your FICO credit score and not the others credit scoring systems.