What is a FICO Score and Why is it Important?

The FICO Score, widely used in many countries around the world, is a credit scoring system that summarizes your financial history and information into a score ranging from 300–850. This score serves as a primary indicator of your credit history's reliability and financial discipline. Having a high score increases the likelihood of your credit application being approved and allows you to secure loans under more favorable terms.

How is the FICO Score Calculated?

The FICO score is calculated based on the following five primary factors:

1. Payment History – 35%
   Paying your credit obligations on time is the most critical factor. Even a delay of a few days can negatively impact your score.

2. Amounts Owed – 30%
   The higher your outstanding credit balance, the lower your score. It is essential to maintain a proper balance between your income and expenses.

3. Credit History Length – 15%
   If you have paid your previous credits on time, it positively affects your score.

4. Credit Mix – 10%
   Having a variety of credit types, such as both consumer and mortgage loans, rather than relying on just one type, can improve your score.

5. New Credit Inquiries – 10%
   Frequent applications for credit in a short period can lower your score.

Conclusion

Your FICO score is a crucial measure of your financial discipline and reliability as a borrower. Paying your credit on time, keeping balances at a reasonable level, and maintaining a balanced approach to different types of credit are key factors in boosting your score.