Your FICO score is a vital component of managing your finances. This is the number used by the credit bureaus to determine how good your credit is. The FICO scoring system can appear to be pretty complicated if you do not know how it works. On the other hand, if you know how your FICO score is calculated, you can easily find ways to keep a good score or repair a bad one. Understanding your FICO credit score is key to maintaining good credit and keeping yourself afloat.

The first part of knowing how the FICO scoring system works is to know what qualifies as a good credit score. The highest score you can receive is 850. The best range is between 720 and 850, with scores from 675 up to 719 still representing good credit. Scores below 675 may have trouble getting good terms on money borrowed, and below 620, it may be hard to get credit at all. A score of 300 is the bottom of the FICO score ladder.

This FICO score is compiled by many different factors. 35% of your credit has to do with your punctuality of making your payments. Any payment that is more than 30 days late is reported to the credit bureaus and a lower score is the result. 30% of the FICO score is dependent upon your total debt. This means the ratio of your revolving debt. Still confused? Revolving debt is a credit card. Debt that is always available in a certain range. The ratio is how much debt you still have in comparison to the limit on that line of credit.

Fifteen percent of your FICO score is dependent upon your credit history. This isn’t just how long you have had credit, although that’s part of it. Let’s say you have a car loan for $100,000. Very nice car, I know. You have paid off 60,000 over the last 4 years. Your debt/credit ratio is 40/60 which is the ideal range.

There are also a couple of unique things that can affect you credit score such as how much money you owe to a court judgement or money you owe on a tax lien. These have much larger penalties, as does any kind of bankruptcy as you could imagine. The number of accounts you have open also affects your score even though it may improve the debt/credit ratio. Each time you make an inquiry on your credit, it also affects your score. Some pulls hurt more than other though. For example, if you are checking your personal credit, this is considered a soft pull and won’t really affect your score.