What Is a FICO Score?
A FICO score is a three-digit number (300-850) representing your creditworthiness. It's used by approximately 90% of lenders to make credit decisions. Scores are calculated based on payment history (35%), amounts owed (30%), credit history length (15%), new credit (10%), and credit mix (10%).
How FICO Scores Work
Your FICO score is calculated from five weighted factors drawn from your credit report. Payment history (35%) is the most important — even one missed payment can cause a significant drop. Amounts owed (30%) looks at your credit utilization ratio, or how much of your available credit you are using. Keeping utilization below 30% is a common guideline, though below 10% is ideal.
Credit history length (15%) rewards long-standing accounts, which is why closing old credit cards can sometimes lower your score. New credit inquiries (10%) and credit mix (10%) — having a combination of revolving credit and installment loans — round out the calculation. FICO scores range from 300 to 850, with 670+ generally considered "good" and 740+ considered "very good."
Why Your FICO Score Matters for Your Financial Goals
Your FICO score directly affects the interest rates you are offered on mortgages, auto loans, and credit cards. A higher score can save you tens of thousands of dollars in interest over the life of a mortgage. Beyond lending, landlords, insurance companies, and even some employers check credit scores.
Improving your FICO score is one of the most impactful financial moves you can make. The fundamentals are straightforward: pay every bill on time, keep credit utilization low, avoid opening unnecessary accounts, and give your credit history time to mature.
Key Takeaway
Your FICO score is a three-digit number that can save or cost you thousands of dollars. Pay on time, keep utilization low, and let time work in your favor.
Related Terms
Interest Rate
An interest rate is the cost of borrowing money or the reward for saving it, expressed as a percentage. When the Federal Reserve raises rates, borrowing costs more but savings earn more. When rates drop, borrowing becomes cheaper but savings earn less.
Budgeting
Budgeting is the process of creating a plan for spending and saving your money. The most widely taught framework is the 50/30/20 rule: 50% of after-tax income to needs, 30% to wants, and 20% to savings and debt repayment.