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The Most Important Number in Your Life
By Stephen Bucaro
There is a number that determines the quality of your life, whether you will own a big
house in a nice neighborhood and drive a new car, or you will live in a noisy apartment in
a dangerous neighborhood and use public transportation. No, it's not your annual income
(although that certainly affects your quality of life), It's your FICO score.
Lenders use your FICO score to determine what interest rate you'll pay on your home
mortgage, auto loans, and credit cards. In fact, based upon your FICO score, they may not
even offer you credit. Insurance companies use your FICO score to determine how much
you'll pay for insurance, or if they'll even insure you.
When you apply for a job, employers do a background check. What number do you think
shows up on that background check to indicate whether you're a responsible individual or
not? Your FICO score is one of the most important numbers in your life.
FICO is an acronym for Fair Isaac Credit Organization. Fair Isaac is a company founded
in 1956 by engineer Bill Fair and mathematician Earl Isaac. They developed a formula that
uses your personal information, like how much money you owe, how may payments you made
late, how much credit you have available, and a whole host of other information to advise
other companies how much of a credit risk you are.
Below is a partial list of the data used to calculate your FICO score:
• Number of credit accounts
• How long accounts have been established
• Number of new accounts
• Number of credit inquires
• How many accounts show late payments
• How late late payments were
• How long ago the late payments were
• How much is owed on installment accounts
• How much total line of credit is used
• How many accounts have balances
• How much is owed on all accounts
• Bankruptcies
• Foreclosures
• Wage garnishments
• Liens
• Judgments
From this information, they calculate an FICO score between 300 and 850. The lower your
FICO score, the higher you are considered as a credit risk. If you have an FICO score
above 750, you can buy anything you want and pay the lowest interest rate possible. If you
have a score below 500, you'll be paying very high interest rates, if you can even get a loan.
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