A FICO score is something that lenders use to decide what type or interest rate they can offer you. When you get a loan, the bank will use your personal credit and your FICO score to determine you eligibility of the loan and the appropriate interest rate.

The score is based on the Fair Isaac Company (hence, the name FICO) and the interest that you will pay. It also takes into account your monthly payment, which is based on your personal credit also.

Same with a car loan, there is always a premium on car insurance or even homeowners insurance. Your FICO credit score can affect what your rate will be be. Your FICO score can even affect your chances of employment.

FICO scoring is calculated from a multitude of different credit data and it is grouped into five different categories.

We will include in every category a certain percentage to give you an idea of the importance each area plays in determining your personal credit score.

History of Payment (35%)

Your payment history is the largest factor in determining FICO scoring. This includes the number of unpaid bills you have, any bills sent to collection, bankruptcies etc. The more recent the problem, the lower your score.

Outstanding Debt (30%)

This is determined by the amount of credit that is being used on a revolving credit line like a credit card, determining your credit to debt ratio. Ideal is about 40/60. This means if you have credit card with a $10,000 limit, you have an outstanding balance of 4,000.

Length of your credit history (15%)

This was a surprise to me. If you have a car loan, and you pay it off immediately, it is not as good as if you have a car loan drawn out for a long period of time and you make payments regularly. However, keep in mind that the difference you pay in interest may not be worth the higher FICO score.

Recent Pull of Credit (10%)

Every time you apply for any kind of credit you create an inquiry on your credit report. A lot of inquiries negatively affect your credit score. However, ordering a copy and checking your own credit report or personal credit score counts as a soft inquiry and does not go against your score.

Types of credit in use (10%).

Is your credit from a car loan or a mortgage? If it is a mortgage, how much do you currently owe compared to the original amount loaned. How many accounts are open. It is not always beneficial to open a new account to receive more available cred