What is a credit score?

When you apply for credit - whether it's an auto loan, a credit card, a mortgage, or a personal loan, lenders want to know how worthy or risky you are as a borrower. A credit score is a number lenders use to help them predict how likely you are to make payments on time. A score is an estimate of your credit risk based on a snapshot of your credit report at a particular point in time. The higher your score, the lower the risk to lenders.

Your credit score plays a vital role in getting you better deals particularly in terms of loans and interest rates that lenders offer you. Understanding your credit score can help you in making decisions that can lower your credit risk and raise your credit score over time.

What is FICO score?

A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that credit users will make credit payments on time.


  • Getting a loan is easier and faster.
  • Credit decisions are fairer.
  • Less credit "mistakes".
  • More credit is available.
  • Overall low credit rates.


  • If low, slightly high interest rates.
  • Terms may not be as favorable.
  • Possible low credit limits for low FICO scores.

Understanding Your FICO Credit Scores

As a rule, credit scores analyze the credit-related information on your credit report. How they do this varies. Since FICO scores are frequently used, here is how these scores assess what is on your credit report.

  1. Your payment history - about 35% of a FICO score
    Have you paid your credit accounts on time? Late payments, bankruptcies, and other negative items can hurt your credit score. But a solid record of on-time payments helps your score.
  2. How much you owe - about 30% of a FICO score
    FICO scores look at the amounts you owe on all your accounts, the number of accounts with balances, and how much of your available credit you are using. The more you owe compared to your credit limit, the lower your score will be.
  3. Length of credit history - about 15% of a FICO score
    A longer credit history will increase your score. However, you can get a high score with a short credit history if the rest of your credit report shows responsible credit management.
  4. New credit - about 10% of a FICO score
    If you have recently applied for or opened new credit accounts, your credit score will weigh this fact against the rest of your credit history. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur. If you need a loan, do your rate shopping within a focused period of time, such as 30 days, to avoid lowering your FICO score.
  5. Other factors - about 10% of a FICO score
    Several minor factors can also influence your score. For example, having a mix of credit types on your credit report - credit cards, installment loans such as a mortgage or auto loan, and personal lines of credit - is normal for people with longer credit histories and can add slightly to their scores.