FICO score or Credit score is a number between 300 and 850 which is given based on a person’s credit report. This is a number that represent the creditworthiness of a person.

How FICO score affect your Journey to Achieve Financial Freedom

To keep it simple, FICO score is a number that bankers and lenders read to analysis how good your credit is. They don’t know about you and FICO score will be a tool for them to understand you. Usually they will use this number to determine their risk of lending money to you.

Because of this, FICO score is very important to determine:

1. Whether you will get a personal loan and mortgage.
2. The interest rate you get on those loans

In the Journey to Financial Freedom, we will get a lot of loans and mortgages. We might get a business loans to start our business or support our new idea to make money. In real estate, we will leverage on mortgage to own as much as rental properties or assets. This will build up our passive income and wealth. 

Besides that, sometime a high interest rate loan or mortgage can easily ruin your investment. Your expenses will be increased due to the interest and a positive cash flow investment might become negative because of this. 

So FICO Score is very important for everybody especially if you want to achieve financial freedom and become rich. This is why we must know how FICO score works and how to maintain and increase it to higher rate. 

How FICO Score being calculated?

Maybe we should know the basic of FICO score and learn how FICO score is calculated.

FICO or credit score ranges are broken down as below:

720-850 – Represent the best score range

700-719 – You can obtain favorable financing terms with this

675-699 – This is still a decent score range

620-674 – Start to have trouble obtaining favorable credit terms

560-619 – Have more trouble

500-559 – You have to improve your score

And your FICO score calculated according to the percentage below:

35% - Payment History. Considers

1. your payments of mortgage, credit card, car loan and other installment.
2. Information from public records such as bankruptcies
3. Details of missed or late payments such as amount and how late it was.

30% - Amounts Owed. Considers

1. Total amount you owe
2. The mix of amounts owed
3. The number of accounts that have balances
4. How much you max out your available credit.

15% - Length of Credit History

10% - New Credit. Considers

1. How many new credit account you have opened
2. How long it has been since you opened a new credit account
3. How many request you have made for credit
4. How long it been since lenders have request credit information on you
5. How good your recent credit history has been

10% - Types of Credit Used

6 ways to improve your FICO score

1. Pay your bills on time. I think this is the best way that you can take

2. Keep credit balance low. Leave some breathing room between the amount of debt and your credit line. Keep it below 25% is the best.

3. Do not open a lot of new accounts over a short period.

4. Do not open too many credit account that you have no intention to use.

5. Pay off your debt instead of debt consolidation.

6. Keep and mange your credit card properly because having credit card and installment loan that you pay on time can help your FICO score.

Conclusion: It all about your money habits

I visit a lot of forums and read a lot of articles about personal finance. I also meet a lot of people because of my business. One conclusion I get is those who fall into deep debt because of their habits on managing their money. Most of them just spend their money emotionally. They simply buy something that they want or not even need and important. They don’t have any financial goals or planning.

Since the first day I started my journey to financial freedom, my mentor already told me that I must learn how to control my buying desire and delay my gratification. He always reminds me that we must buy our toys with investment and this is the best way to buy liabilities.

So is there any way that you are using now to control your bad money habits in order to achieve any financial goals?

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