FICO Explained

Fair, Isaac & Co (FICO) says you are a 640, what does it mean? Your FICO number is a major factor in in your viability as a borrower. It's based on a scoring system, built by the three major credit bureaus (Equifax, Trans Union, & Experian), that evaluates relative layers of risk in your past credit history. Each of the three bureaus judges you differently, then FICO uses their own algorithm to combine these three reports into one score.

How exactly the score is established is still double secret probation in it's nature. For the most part though, it does a pretty good job grading your risk level.

FICO scores vary from around 375 to 900 points. The majority of people have a score in the 600's. FNMA and most lenders consider a 620 or above score as "good" credit. With scores above 680, borrowers begin to qualify for reduced documentation loans at the same rates as regular "good" borrowers get for conventional loans. Borrowers with credit below 620 start to pay higher and higher rates as the score falls. If you score is blow 580, it's time to start paying your bills on time mister!

The one good thing a borrower with a low score can look forward to is, that FICO's are heavily weighted towards your most current history. Start paying off those debts, and your score will climb in no time. To get a free copy of your credit score, visit AnnualCreditReport.com