So what actually makes up a FICO score?

Good question! Until recently, nobody knew.

But now, it's understood that credit scoring is a calculation lenders use to make their lending decisions, and consumers are gaining a new insight into how these all-important scores are calculated.

But more importantly, consumers are beginning to understand how far-reaching these scores can be.

Your credit score is a mumber value extracted from the information in your credit report. Its purpose is to reveal to lenders just how likely you are to repay loans and credit card bills on time.

The common underlying wisdom is that a good credit score is the result of good, careful attention to all phases of one's life. It supposes that if you've been careful and responsible with credit in the past, you're likely remain that way in the future.

FICO Scores Affect All Phases of Your Life

But that's not all. Today, your FICO credit score can affect whether you can even GET credit and how much you will pay for the privilege of getting that credit.

The insurance industry uses this score to determine auto insurance premiums. Employers assess the character of new applicants by pulling a credit report. Businesses put a lot of faith into this 3-digit credit ranking tool.

Usually,the rule of thumb in the lending industry is this: the higher your credit score, the more likely you are to be approved and to pay a lower interest rate on new credit.

To determine your individual credit score, most lenders use the system developed by Fair Isaac Corporation. (Hence, the abbreviation "FICO.")

There are five factors that comprise your credit score. Each factor counts as a percentage of your total FICO score. They currently are:

• your payment history (35 percent);
• how much you owe (30 percent);
• the length of your credit history (15 percent);
• new credit (10 percent);
• and and host of other factors, such as having a mix of credit types in your credit report (10 percent.)

Range Of FICO Scores

FICO scores typically range from 300 to 850. Most lenders consider scores of above 700 as good.

So, if your credit score is lower than you would like and is winding up costing you money, financial experts suggest you take free steps -- like those found on this weblog -- to build up your score.

The good news is that your FICO score is not set in stone. It is always changing, up and down, depending on your credit history and your credit habits, so establishing good credit practices starting today will help you quite soon in improving your credit score.

"Piggybacking" Credit Now Won't Get Better Credit Score

Starting in late 2007, Fair Issac Corporation said it would stop the practice of including certain types of credit card accounts, and closing the long-standing questionable loophole that allowed strangers to "piggyback" on a different cardholder's good credit score.

Piggybacking credit was being exploited by many people to artificially boost their credit scores by adding better credit ratings to their own. It wasn't making them any more "creditworthy." It was simply getting them past the credit screening process at the lender's level. Some noted this was just a clever way to work the system. But actually, there could be a high level of fraud in this practice.

Did FICO Scores Fail Banking System?

FairIssac Inc. has always kept its vaulted FICO credit scoring formula a secret. The FICO scoring formula, if known by the average consumer, may help them use credit more responsibly, while keeping bankers more responsible on whom them grant credit in the first place.

It will probably be true that bankers will eventually actually (gasp!) stop relying too heavily on making credit decisions only on targeted FICO scores. Knowing how the FICO score is calculated, repackaged and sold to banks will likely keep greedy bankers from making bad loans in the future.

The current debacle referred to in the media as "The Subprime Mess" -- as if it's nothing more than just another capitalistic tocis spill industry needs to clean up before moving on -- was in fact just an economic trend that profited many banks and investors in risky financial instruments that have, like feeble crippled birds, come home to roost at the trough of public taxpayer bailouts.

The bankers will wholeheartedly promise: In the future, better and more relliable underwriting standards will one again become the norm when one goes to buy a home. Yes, it will take longer to get approved for a new home loan or a refinancing decision. But less money will be lost in the long run, and the industry will avoid making massive bad loans. Yes, low-doc and no-verification loans will become a thing of the past. Loans will not be seen as quick-flip profit centers in banks. Sanity might indeed be making a comeback!

The truth of the matter, though, is that the criminal minds who conceived this new way to tweak the economic system to benefit themselves and their greedy investors, will very likely already be onto their next con.

Did FICO fail their banking customers? Read this Business Week article and decide for yourself.

So with this change to how your FICO credit score is calculated, it is more important than ever to know the FICO scoring secrets and learning how to repair your own credit rating. Read more about how to get better credit elsewhere on FindHow2.com.