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Pay Down Your Debt Challenge

Know What Affects Your Credit Score

Here's how your FICO score is determined and how you can raise it

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Your credit score is an all-important, three-digit number that determines much of your financial life. Too bad more of us don't understand how credit scores work.

See also: Having bad credit often costs you more.

Maintaining a healthy credit profile is important because your credit rating will impact everything from whether you get a much-needed loan to what your life insurance and auto insurance rates will be.

Here is a quick primer on what goes into your credit score, as well as tips you can use to positively impact your credit rating.


What Does FICO Mean Anyway?

Although there are several types of credit scores, such as the VantageScore or the PLUS score, the most popular credit score used by lenders is the FICO score.

The FICO score gets its name from the company that developed it, Fair, Isaac and Company. FICO scores range from 300 to 850 points, and to get a peek at yours you generally have to pay for it. You can get your scores from the website. They currently cost $19.95 each. Other credit scores can be obtained free. Unfortunately, though, you can't get a FICO score without paying for it. You can get a free score directly from Fair Isaac by signing up for a 10-day trial service for credit monitoring. The credit monitoring is $14.95 a month. FICO explains the deal in the fine print on their home page.

debt challenge what affects your credit score target

— Photo by: Piotr Pawinski/Alamy

Your credit scores are calculated based on the information contained in your Equifax, Experian and TransUnion reports. To calculate your FICO credit scores, Fair Isaac look at the data in your credit reports and evaluates them like this:


Payment History
— 35 percent
Amount of Debt Owed — 30 percent
Length of Credit History — 15 percent
Mix of Credit — 10 percent
Inquiries or New Credit — 10 percent

Next: Learn why your payment history is so important. >>

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