Understanding your credit score is an important part of your day to day life as an adult.  It is important to understand how you receive your credit score and how your credit score ranking will affect various interest rates that you may receive. 

The credit score has been perfected by a company called Fair Isaac Corporation or FICO.  FICO developed software as well as many ancillary products, aimed at both lenders and consumers that compute credit scores and offer advice on interpreting or improving them.

There are various factors that go into determining your FICO credit score.  Information is collected from your credit report and weighted by FICO software in approximately the following ratios:

• Payment History – 35%

Have your payments been paid in a timely manner?  Is there a consistent history of slow payments?

• Amounts Owed – 30%

What is the total debt? What is the percent of available credit converted to debt?  If credit lines have been exhausted then this will have a negative effect on your credit score.

• Length of Credit History – 15%

How long has the borrower been a creditor?  A lack of credit history will have a negative impact on your credit score.

• New Credit – 10%

If you have a high number of recently opened credit accounts in proportion to the total open accounts can negatively affect your credit score while opening  new credit line with the purpose of re-establishing your credit can be viewed as a positive for your credit.

• Types of Credit Used – 10%

The various types of credits you use can have a negative impact on your credit score.  If you have too many credit card accounts or loans from certain types of lenders this will not be viewed as a positive by FICO and will be marked in your credit report.

Now that you know what certain criteria FICO is focusing on when determining your credit score you will have a general idea of what decisions you make and how they will impact your credit score.  When you have a credit rating of 700 or above, which is deemed to be an A rating, you will find things to be much easier in your financial life.  You will always qualify for the lowest interest rate on your loan and will be easily approved for most any loan that you apply for. 

Once your score starts to dip 650, is considered a B+ rating, the various interest rates that you will receive will start to climb which can put you further into debt.  While it may still be possible to apply for loans or lease a vehicle with a low FICO score you certainly will qualify for more loans and lines of credit at more manageable interest rates with the higher FICO score that you have.

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