Understanding FICO Scores in USA
What is FICO Score?
FICO score is a 3-digit number (300-850) that represents your credit risk. It's the most widely used credit scoring model in the USA, used by 90% of top lenders. Your FICO score determines whether you get approved for loans and what interest rate you'll pay.
A score of 740+ is considered very good and qualifies you for excellent rates on mortgages, auto loans, and personal loans.
5 Factors in FICO Score Calculation
1. Payment History (35%): Late payments, bankruptcies, and collections severely impact your score. Even one 30-day late payment can drop your score 50-100 points.
2. Amounts Owed (30%): Credit utilization ratio matters most. Keep balances below 30% of limits, ideally below 10%.
3. Length of Credit History (15%): Average age of accounts and age of oldest account. Keep old cards open even if unused.
4. Credit Mix (10%): Having credit cards, installment loans, and mortgage shows diverse credit management.
5. New Credit (10%): Opening too many accounts quickly or having too many hard inquiries can lower your score.
How to Improve Your FICO Score Fast
Quick Actions (Week 1):
• Pay down credit cards to below 30% utilization
• Dispute errors on your credit report
• Become authorized user on someone's good account
• Request credit limit increases
1-3 Months:
• Make all payments on time
• Don't apply for new credit
• Pay off collections
• Keep credit card balances low
6-12 Months:
• Maintain perfect payment history
• Reduce total debt
• Let credit age improve naturally
• Consider credit-builder loan
FICO Score Impact on Interest Rates
Personal Loan APRs:
• 800-850: 3.5-5% APR
• 740-799: 5-7% APR
• 670-739: 7-10% APR
• 580-669: 12-18% APR
• Below 580: 20-36% or denial
Mortgage Rates:
• 760+: 4.0-4.5%
• 700-759: 4.5-5.0%
• 660-699: 5.0-5.5%
• 620-659: 5.5-6.5%
Example: On a $300,000 30-year mortgage, a 760+ score (4.0%) results in monthly payment of $1,432 while a 680 score (5.0%) results in $1,610 - that's $64,080 more paid over 30 years!