On the other hand, a low score can lead to higher interest rates and less favorable loan terms.
Understanding Credit Scores
A credit score is calculated based on your payment history, credit utilization, length of credit history, credit mix, and new credit inquiries. The most widely used credit scoring model is the FICO score, which ranges from 300 to 850.
FICO is the most widely used model, accounting for about 90% of all credit scoring.
Understanding the FICO Credit Score
The FICO credit score is a three-digit number that ranges from 300 to 850. It is calculated based on the information in your credit report, which includes:
How FICO Scores Are Calculated
The FICO scoring model uses a complex algorithm to calculate your score. Here’s a simplified breakdown of how it works:
The Myth of the “Credit Card Balance”
Many people believe that carrying a small balance on their credit cards is a bad thing, but this is not necessarily true. The key is understanding the difference between carrying a balance and paying the bill in full.