The most accurate gauge for our performance in school is our report cards. The most conclusive measure for our performance at work is our evaluation report. The most definitive barometer of our performance in any video game is our game score. In the same light, the most definitive criterion for our financial fitness is our FICO score.



Our FICO score has deep repercussions for our financial lives, and consequently, for our daily lives as well. Much as we would want to contest the belief that money makes the world go round, there is more truth to such a statement that we can ever deny. Hence, our FICO score plays a crucial part in our dealings in society.

What Is A FICO Score?

The acronym FICO stands for Fair Isaacs Company, the very first establishment to use a credit scoring system for the purpose of determining the risks involved whenever they extend credit to their applicants. Throughout the years, this credit scoring system became an industry standard that serves a lot of purposes in the modern day world.

Today, whenever people refer to a FICO score, they mean your credit score which is based on the aforementioned Fair Isaacs Company scoring system. Why is this important? It's because your FICO score is a more or less accurate gauge that is used by lending institutions to determine your ability of paying off a debt.

The higher your FICO score is, the more capable you are of satisfying the loan in full, the less of risk you can be as an investment for the lending companies. A high FICO score therefore would allow you to secure a loan much easier than a person whose financial capabilities are placed in doubt because of their lower FICO score.

Your FICO score would also be used as a measure to determine how big or how small the applicable interest rates can be. Low FICO scores, being higher risk investments for the lending companies, would merit higher interest rates. High FICO scores, being safer investments, would need only low interest rates.

What Comprises Your FICO Score?

Your FICO score would be the net result of several factors. Let's take a look at how they comprise your financial identity.

Outstanding debt, which comprises 30% of your FICO score. This would tell the lending company how much of your existing credit is being eaten up by existing loans.

Length of credit history, which comprises 15% of your FICO score. If you have been paying a loan of significant amount over a long period of time, then this would fare well with the lending companies as it establishes a level of commitment they would want to see.

Recent inquiries, which comprise 10% of your FICO score. An inquiry is equivalent to a loan application. The more inquiries you have, the lower your FICO score would be.

Credit balance, which comprise 10% of your FICO score. Credit balance is the difference between the current amount of your existing loans and the original amount of the same. The bigger the balance, the lower your FICO score.

Payment history, which comprise a whopping 35% of your FICO score. This includes everything, from the timeliness of your payments, to the number of bills you have failed to pay, to the bills that have been forwarded to collection companies. Maintaining A Good FICO Score Is Essential For Your Financial Health

There will always be those times when we would find ourselves in a financial rut. These are the times when bills become due almost simultaneously, when satisfying them is rendered impossible by the other financial demands of our life.

Acquiring loans would help bail us out of these difficulties. In certain cases, loans are quite necessary for our survival. It would be to our best interests that securing a loan be easy and almost guaranteed. A good FICO score would help achieve this, and give us a better position to resort to loans whenever the needs arises.