If you've heard of the term “FICO” before and didn’t know what it meant, FICO stands for a company named Fair Isaac Corporation. The Fair Isaac Corporation developed a mathematical formula to determine a person’s creditworthiness based on their credit history.

These scores are three digits and range from 300 to 850. The closer a person can get to the 850 mark; the easier it is to get low-interest loans on just about any purchase.

Below is a list of ratings for FICO Scores:

• Excellent: Over 750
• Very Good: 720 or more
• Acceptable: 660 to 720
• Uncertain: 620 to 660
• Risky: less than 620

Once your score is calculated, it is then shared with the three major credit bureaus in the United States, which are Equifax, Experian, and TransUnion.

What are the types of things that affect this score?

Payment History - 35%

How well you pay your bills is the single most important factor in the calculation of your score. Your credit score is negatively affected each and every time you pay a bill late. Not surprisingly, your score is also negatively affected if any of your accounts have been turned over for collection, if you’ve filed bankruptcy or allowed foreclosure on a mortgage. Negative information will stay on that report for seven years, ten for bankruptcy.

Amount Owed to Creditors - 30%

Your FICO score is affected negatively if you owe a large sum of money to many different creditors. Having what you owe proportionate to your income will not only raise your score, you'll be able to have peace of mind knowing you can pay your bills since you haven't overextended yourself.

Length of Credit History - 15%

How long you've established credit does affect your score; however, it is not as important as the above two points. Paying your bills on time and maintaining a clean credit record will eventually boost your score.

New Credit Lines - 10%

Opening all kinds of credit cards, or making many major purchases in a short period — even if you can afford it will do more harm to the score. It's never a good idea to open credit lines all over the place just because you can.

Mix of Credit - 10%

Having a good balance of credit such as credit cards, mortgages, vehicle loans is a good indication that you are a trustworthy person when it comes to credit. This lets a creditor know that you are responsible no matter how small or large the loan, you're likely to pay it in a timely fashion.

Maintaining good credit allows you such perks as lower insurance rates and lower interest rates on all types of loans. And now that you understand what a FICO score is, and how it is calculated, you can put forth your best effort to keep it at the highest possible level so you're able to take advantage of the many benefits afforded by a person with good credit.