If you have seen the freecreditreport.com commercials you know that a FICO score is a number between 450 and 850
. But what does it mean and how does it affect your life.
A FICO score is an indicator that tells others just how likely it is that you are going to pay back any debt that you may have. It looks at things such as how well you have paid your bills in the past, how much debt you currently have and how easily you can pay that debt.
Banks look at credit scores as a way of measuring risk and how financially responsible you are. A FICO score over 700 indicates that you are very likely to pay back any debt or bills that you take on. A FICO score below 600 on the other hand indicated that you are very likely not to pay back any debt or bills that you take on.
How in the world does this affect you and what would be the purpose of keeping it high? The biggest reason to keep your FICO score as high as possible is that everyone looks at it.
For starters if you ever want to buy a house and don't have the $100,000s of dollars lying around to do it you are going to have to take out a loan. If your FICO score sucks you will probably not be able to get one, or if you do the interest rate would be so high that you would struggle to pay it.
Also if you want to rent an apartment or a house your landlord will be looking for indications that you are responsible and that you will repay them. The best way to do this is through the FICO score.
In other words if your FICO score is terrible your quality of life will sink greatly. Pretty much anyone who wants to know how likely you are to pay your bills has access to that information through the FICO score, if your score is terrible then you will have less opportunities available to you and many more challenges. So it is best to just keep it as high as possible.