FICO scores provide lenders a tool for predicting the likelihood of applicants repaying their loans. An understanding of how your FICO score is calculated and how it can impact your life will make your general financial management and ability to make large important purchases less confusing and stressful. 
What the Number Means
FICO scores range from 300 to 850 points. The average FICO scores fall between 600 and 800 points, with the statistical average coming in at 723. A high score would be anything over 760, while a score below the low average of 600 would begin to cause concern. The numbers indicate the amount of risk a lender, insurer, or other financial agency would be taking on by working with a specific consumer. Someone with a high FICO score will benefit from better interest rates and lower premiums, while a low score can limit the car financing options available.
How FICO Score is Calculated
FICO scores are calculated using predictive analytics that pull information from credit reports to determine the likely financial responsibility of consumers. Different aspects of your financial profile account for certain percentages of the FICO score calculations.
Credit report inquiries and new lines of credit account for ten percent of your FICO score. Someone who has opened several new lines of credit over a short period of time is seen as a potentially high-risk consumer, especially if the credit history is limited.
The use of different kinds of credit, such as credit cards and loans, make up another ten percent. A consumer that represents the lowest risk to lenders will have a range of credit categories that are kept both active and healthy.
The length of time your credit report spans makes up fifteen percent of a FICO score. The overall length of your credit report is taken into account along with the age and health of each credit account contained therein. Simply put, more information contained in your credit profile means the FICO calculation has more data with which to work, and that creates a more accurate analysis. A limited credit history gives a much narrower look at your financial habits.
The amount currently owed and payment history habits comprise thirty and thirty-five percent, respectfully. This should clearly illustrate how important it is to keep up with all required payments to various creditors and that outstanding debt can become an issue. Payment history is considered the most important factor in the calculation of your FICO score.
FICO scores are used by lenders, insurance agencies, and other financial agencies while the risk level of a consumer is being determined. Given the inclusiveness and thorough nature of how FICO scores are calculated, it gives a clear picture of your overall financial responsibility, and whether or not you are likely to keep up with structured repayment of debts owed.
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