The Fico Score: A Source for Planning Your Future

I remember being terrified of starting a credit card account; after having heard so many stories of people getting credit cards and accidentally harming their livelihood with financial ruin, anxiety settled in when my first credit card arrived in the mail.

Many factors go into why people establish “bad credit” for themselves, but what credit score they’re affecting is a different story. You might say credit is a risk that can have terrible consequences if abused, but it can also be a tool for all consumers if they understand what they’re dealing with.

I hope to highlight how to differentiate between a FICO score and other types of credit scores, which will hopefully help anyone looking for credit repair answers that will aid them in the long run.

What Is a Credit Score Anyway?

At this point, perhaps you don’t even know what a credit score may even be. It plays an essential role in helping any consumer or borrower gain the financial possibilities needed to get ahead in life, especially in our modern American society where competition is more rampant than ever before.

To succeed in getting valuable assets like housing, vehicles, long-term loans, or other major purchases, credit scores are critical towards either making someone an attractive customer or an individual to avoid like the plague.

The basic purpose of a credit score can be equated to that of a school report card.

Regardless of how you received your grades while in school, you got them nonetheless. At the start of every course you ever take, the expectation was set with your teachers: they wanted you to work hard, and that you wished to advance in your education.

When the semester concluded, the score you received would be a quantifiable summation of the work you did. The passing grades ultimately enabled you to move on and take higher level courses, pushing you towards your goal of finishing school and entering the workforce; the highest grades might have even offered rewards such as academic distinctions or scholarships for college.

However, repercussions were felt when grades fell too low. This either could be because of apathy or a lack of understanding towards the concepts. When this happens, you would face the reality that you would need to repeat the failed course in order to fulfill your graduation requirements. The damage you inflicted would have to be repaired before your school’s administrators felt you were ready for more.

In terms of a credit score, these reflect your responsibility as one who borrows money for making purchases. After all, what is a credit card really? It acts as a perpetual loan that continually inflates or deflates depending on how many purchases you make with your card and how quickly you pay off those transactions.

The credit score is then used for the purpose of advertising how well you do at paying off your balances on time, especially in comparison to others. The following factors determine how your score is calculated.

• Payment history, or how often you’ve paid your bills on time
• Utilization ratio, or how much of your credit you’re using at one time
• Length of history; average age of your credit accounts and the time that’s passed since you last used them
• Frequency at which you’ve opened new accounts
• How many types of credit do you have? (i.e., loans and mortgages)

What Will A Good Credit Score Give You?

Just like how a strong GPA would get you places in school, a higher score will grant you greater financial rewards. When I say this, I don’t mean that a credit card company such as Discover or Capital One will show up on your doorstep handing cash to you as an expression of gratitude. But to use an example from my own life, I’ve definitely reaped the benefits from exercising restraint and responsibility in using my credit card.

When I started using credit cards in early 2016, Discover was the only company that would give me—a poor college kid with no credit to his name—a chance. With that, they gave me a card for a Discover Student account with $500 credit. It wasn’t much but considering that I only really used it for gas fill-ups and miscellaneous yet substantial purchases, that credit line was enough.

In the time that has since passed, I now have two accounts with a cumulative $8,000 credit line between them both. I also have a strong score according to the FICO credit score scale, one which will be explained shortly.

In mentioning all of this, I really don’t mean to boast in the slightest; I simply bring it up because I’ve gotten these benefits from exercising responsibility and restraint with the ability to “put off” paying for purchases until a later date.

For me, this has come from making decisions on what things would be better suited to buy with a debit or credit card, being conservative with the accounts I have open (and how often I use them), and then almost always paying off my purchases whenever they’re officially posted on the account balances. This way, I have never had to pay interest, while I’ve also greatly boosted my credit and sometimes received rewards.

What Is the Fico Score Then?

Now if you’ve researched into credit cards or have any at all, chances are that you probably have heard about the FICO score. Little needs to be said here since the FICO score is actually just a specific type of credit score out of the many that are used in the financial market.

The main difference is that the FICO score is used by 90% of the top lenders. Being the most commonly used credit score to report on consumer credit viability to banks and other lenders is why the credit score report cards from FICO will often be seen on most online accounts for American banks. It also simplifies the complicated statistics that go into calculating credit scores, while also providing a straightforward metric system for understanding how strong your score is.

Should you check the FICO score report through your bank’s website, your rating will be displayed on a range from 300-850 points. You generally want a score of at least 700 points.

Do everything you can to keep your score in that upper echelon of credit ratings; your future as an investor will depend on that exercise in restraint. Otherwise, if you need to escape from the trap of debt, do so within your personal reach.

Know the Difference and Be Wise

Ultimately, there are many credit scores to be aware of. However, if you’re going with the most reliable and/or marketable score, refer to the FICO rating. This will either be your most valuable tool or debilitating crux in your attempts to diversify an investment portfolio throughout your life.

And if that future isn’t quite within your grasp, don’t worry; I certainly have a long way myself considering that I’ve only held credit for a little over two years. However, given that my exercises in restraint and responsibility have blessed my wife and I thus far, I’m a witness to how a financial future is possible.