FICO is an acronym for the term Fair Isaac Credit Organization.  The FICO credit scoring system was developed by engineers, mathematicians, and consultants to determine credit worthiness.  Lenders use FICO scores to determine risk when deciding whether or not to lend someone credit.

Your FICO score is reported through a credit reporting agency, and most lenders consider three prevalent reporting agencies, each known to calculate scores differently.

The most important factor in determining your FICO score is your past payment history, which accounts for approximately 35% of your credit score.  Although this is the largest factor, there are others that affect your score as well.

The amount of credit owed can have a direct effect on your FICO score, accounting for approximately 30%. If your credit lines are at their limits, this will likely lower your score.  If your balances are low, and you have a lot of available credit, this can improve your score by showing good credit management.

Opening up a large number of new credit accounts in a short period of time may present a risk to some borrowers if you do not have a long credit history. Depending on the length of your credit history, many new credit lines may look like intent to spend.  This factor accounts for approximately 10% of your FICO score.

The length of your credit history is also a factor in your FICO calculation.  If you have little or no credit history, a lender may not be able to sufficiently determine if you have a good repayment record.  A person who has no history of major purchases and repayment may be considered a higher credit risk. This factors in at approximately 15% of your score.

The types of credit you use and the number of credit inquiries and applications may also adversely affect your FICO score.

FICO scores range from 300 to 850, 850 being the highest. FICO scores ranging between 500 and 580 are considered poor credit scores. You will not necessarily be turned down for a loan, but you may be subject to higher interest rates, high lending fees, stricter terms, and higher payments.  Often, people with poor credit scores have no choice but to accept unfavorable terms because they have no other credit options.  This may leave you in a long-term relationship with high payments and fees.

In addition to obtaining loans, a bad credit score can adversely affect other areas of your financial well-being.  Poor credit may cause you to have higher insurance premiums.  Your poor credit record could even cost you job opportunities that require a record of responsible financial management and good decision making abilities.

People with credit scores of 499 and below will definitely need some credit repair. It is best to get your financial situation under control, pay down your debts, and start rebuilding your positive credit.  They are generally considered a high risk for default, and not credit-worthy.