Budgets and Money

How Does a Credit Score Work?

In the next article in our family budget series, we share information to help explain your credit score, what it means, and how your financial habits can impact it.

Managing Your Family Budget: What's a FICO Score and How Is It Calculated?

Your household budget is made up of many different factors. And while you may not think of your FICO credit score as part of your family budget, it is. For example, a healthy FICO credit score can make you eligible for lines of credit when you need it. It can also allow you to take advantage of lower interest rates on major purchases such as a vehicle or a home loan - saving you money!

But what exactly is your FICO score?

According to Investopedia.com, a FICO score (an acronym for Fair Isaac Company, the company that created and computes the credit score), is a type of credit score that makes up a substantial portion of your credit report that lenders use to assess you as a credit risk and whether to extend your credit.

Here's how your FICO score is calculated:

Credit Score

Source: myfico.com

Your FICO Scores are calculated based on these five categories. For some people, the importance of any one factor in this calculation depends on the overall information in their credit report - such as number of late pays, collections, a bankruptcy, people with a lot of debt, and people who are just beginning to establish their credit. Moreover, as the information in your credit score report changes, so will the importance of any one of these factors in determining your score.

Establishing a solid credit profile can be something of an art. When you understand what makes up your credit score, you can budget accordingly and make smarter decisions about your credit and spending habits. If you have bad credit, this information can help you break harmful habits and start fixing your financial history now. That way, you can begin reaping the benefits of good credit as soon as possible.

For more information on how you can get smarter about managing your family budget as well as building and maintaining your credit history, visit the Protective Learning Center.

Was this article helpful?
0
2

All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax‐related decisions. For information about Protective Life and its products and services, visit www.protective.com.

Family Budget

Managing a family budget takes work. It also includes managing your FICO credit score. This article looks at what your FICO credit score is and what it's made up of so that you can better manage your family budget with the good credit you deserve. For more information, visit our learning center.

WEB.1710.07.15